Silver Price Psychology

People have a natural tendency to seek and understand value. The currently dominant baby boomer generation has a speculative mindset with regard to investment. The relatively frugal generation that lived through the first great depression is now fading in influence, along with their collective memory of harder times.

Both professional and individual traders tend to chase momentum, with pros often using technical analysis to justify market movements and their positioning in the market. Individual investors also listen to professionals talking their book, rather than to more objective experts.





Silver Price Spikes

Nevertheless, in the silver market, any significant spike higher tends to feed on itself. This is not only due to speculative buying momentum, but also due to short covering buying as the truly limited supply of physical silver exerts its upward influence on the metal’s price.

While inevitable does not imply imminent, the longer the current price suppression paradigm lasts in the silver market, the tighter the spring becomes coiled, and the higher will be the price’s ultimate release upward.

Understanding Silver’s Value

The main point here is that silver’s intrinsic value is currently understood and accepted by only the few who got into the market early. Those who get into it once the inevitable rally has started will be buying on impulse or out of fear, only rationalizing their investment after the fact.

Some might believe that silver’s price spiking higher will suddenly and magically bring out all of the physical silver ever mined throughout history, including the billions of ounces currently sequestered in technological components, silverware and jewelry.

While some recovery of metallic silver from these recycling sources is likely, the most probable outcome will be an increasing scarcity of physical silver that will fail to meet the growing demand.

Although the masses might be manipulated into seeing spiking silver prices as a selling opportunity before the ‘inevitable’ crash — perhaps because 16 ounces of silver historically could buy one ounce of gold — the likelihood remains that the silver price will ultimately rise both in U.S. dollar terms and relative to the price of gold.

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In large part, the main wave of buying that propellant silver prices higher, will ultimately be psychological in nature.
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