The Silver Price Enigma: Buying Low, Trading High

For the long-term silver holder, investor or conservationist — as differentiated from the active derivatives or physical trader — two strong psychological phenomena tend to exert influence over their decisions:

1) The normalcy bias as applied to fiat currency - Investors have been conditioned to ignore gradual inflation, the threat of hyper-inflationary periods and the risk of an outright currency collapse. Diversity from a currency standpoint is rarely considered an investment priority.

2) The psychological challenges of being an early buyer – Some people have a problem sitting tight with their silver investment in the face of adverse market conditions, even when they feel intuitively that it is the right place to put their wealth.

The power of social proof and market pricing can become overwhelming since it is a part of human nature. Investors have to overcome the difficulty of stepping out of the crowd into the relatively lonely position of the valuation investor where no one else seems to understand their viewpoint.

Selling Versus Trading

The mindset of the masses can be summarized with the subtle — yet significant — difference between what is meant by selling versus trading.

Selling implies exchanging an item for paper or electronic currency. This process is gradually being made obsolete by policy. On the other hand, trading implies exchanging or bartering one thing for something else that has inherent value or power.

Silver has been kept so relatively cheap for so long by market manipulation that most people are convinced that its suppressed paper price truly reflects its physical supply and demand fundamentals. This psychological situation persists despite the fact that practically any fundamental measure suggests silver should be priced much higher.

The Challenge of Being Right and Sitting Tight

The will and determination required of an investor to be right and sit tight is tremendous and seems to require an almost religious conviction. The psychology of this situation can make a person vulnerable to conspiracy theories about why market conditions currently seem unfavorable to their position.

Silver investors also have to face the difficulty in accepting the idea of currency collapse or hyperinflation. These scenarios are not very popular in the minds of others and are truly something that no one wants. Nevertheless, the acknowledgment of the possibility and subsequently positioning oneself appropriately can be seen as implying a desire for that unpopular outcome.

Yet, as the U.S. Dollar slowly begins to fade from world reserve currency status and the true meaning of the Barclay LIBOR scandal emerges, even mainstream observers are suddenly starting to characterize the silver market as manipulated, almost as a matter of common knowledge.

Looking ahead and embracing an unpopular but fundamentally justifiable perspective is an ability that can serve long term investors well, even in an unpredictable world where survival often depends on the cohesiveness of social relationships.

In an investment environment where savers are being punished by sustained inflation and historically low interest rates, at least silver offers an alternative to those investors who can see the writing on the wall regarding the questionable future of intrinsically worthless fiat currencies.

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