The Hottest
Metal Investment of 2012 By Andy Hecht, Senior Commodities Editor Dear Sovereign Investor, Back in 1995, silver was dirt cheap at $5 an ounce. Very few people on earth thought it could go higher. This was almost two decades after the Hunt Brothers fiasco, in which the two sons of Texas oil billionaire Hudson Hunt tried and failed to manipulate and corner the world silver market in 1979 and 1980.
But back in the mid-1990s, the metal was suffering further ignominy. Silver is both a precious and an industrial metal - but thanks to the advent of digital cameras, its use as an industrial metal was in dramatic decline. Kodak was previously a big buyer of silver because of the use of silver nitrate in photo printing paper, but the world was changing.
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So not only had silver become the Rodney Dangerfield of the commodities market, thanks to the Hunt Brothers, but its role as an industrial metal was also dwindling. Silver got absolutely no respect!
But I saw something. In 1995, when I ran the giant precious-metals trading business at the Phibro division of Salomon Brothers, I convinced the company to invest $1 billion in silver.
I could see the fundamentals for the precious metal were changing. Cell phones and new computers were using increasing amounts of silver, and the demand for these new technologies was surging.
During the Hunt brothers' debacle, silver traded up to $50 in 1980. Then it plunged, and spent the next two decades recovering.
However, the equilibrium price for the metal has increased dramatically since the millennium. Silver traded up to $49 in 2011, chiefly because industrial and investment demand has been strong and growing. Technical Picture for Silver is Still Improving After that amazing run last year, the silver price tanked after the CME and CFTC raised trading margin requirements in April 2011 - but the price has come steaming back. Resistance now stands at $36 an ounce. And recently, the CME lowered margins on the precious metal.
Once a market breaks through resistance, it tends to run on the upside. Platinum and palladium, two other industrial precious metals, have broken resistance recently. Platinum pierced resistance at $1,650 and is currently at $1,660, while palladium broke above $700 and is currently trading around $707.
I believe that silver is next. Take a look at this long-term monthly chart... 
Please click here to view larger image
Momentum in silver is shifting higher after a long period of consolidation that took prices back to levels just above $26 an ounce.
But, above $36 all bets may be off! The monthly chart is telling me a few things here. First, the number of long and short positions in the market is well below the levels seen last March.
At the same time, volume is starting to rise in the silver market. In other words, the "smart" money is nibbling again. There is momentum in the market, and it will ignite the silver price this year. Last week silver briefly broke above $36 only to be sold off with gold in what reeked of government intervention. I wrote about last week's action on my blog. Keep the Fundamentals in Mind ... Silver has two things going for it today. First, industrial metals and industrial commodities are seeing a rebound. This makes sense in a presidential election year. Silver will benefit from a rebound in the perception of global economic health. After all, silver is found in all the cell phones and computers being snapped up all over the globe on a daily basis.
Secondly, silver is gold's little brother, but it is more volatile than the gold market because gold tends to trade as a reserve currency. Therefore, when silver comes down, it comes down hard.
But when silver rallies, it explodes!
The continued debasement of the major fiat currencies, the U.S. dollar and the euro, is reason enough to buy silver when it breaks above resistance. Growing industrial demand for the white metal is another reason, as is anticipated renewed investment demand.
Silver, just like gold, is hard money. Silver is real money and has real value. My colleague, Jeff Opdyke, has been writing about the death of paper money and the growth of digital cash.
There will always be a need for real money with real value, especially as government policy in the U.S. and Europe is hell bent on debasing and devaluing their currencies.
The day may come when the debit on a digital card will not be in U.S. dollars or euros, but in grams of gold or silver! The Bottom Line... On the next leg up, silver prices will make a new high above $50. In fact, I believe that the price of silver will go to more than $60.
If you buy above $36 and it goes to $60, that's a 67% profit. Of course, if the silver market falls back below $33, it will signal a failed rally. But, I'd risk a 10% loss any day to make more than six and a half times that. This is a classic risk-reward trade.
At the last glance, silver was sitting at around $34 an ounce.
However, once silver starts to move up, a hungry crowd of traders and investors will push the price much higher. Silver will once again become the precious investment it was last year before the CME and CFTC decided to raise margin requirements.
Once silver gets going this time, the market will ignore the wishes of the powers that be for lower silver prices - even if they decide to play with margin levels again. This time it will be too late and silver will once again reflect the true picture of fiat currencies, global debt levels and the inflationary paths of the U.S. and Europe.
Make sure that you hop on this silver freight train to profits.
Happy trade hunting...
Andy Hecht
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