HardAssetsInvestor

Written by Drew Voros  |

February 16, 2012

James Turk More Bullish On Silver Than Gold

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GoldMoney founder sees more upside with the white metal in 2012.

James Turk is founder and chairman of GoldMoney.com, which is a European-based precious metals firm that presently safeguards $2.1 billion of precious metals assets owned by customers. Turk is a popular speaker at conferences as well as on radio and television. His latest book is “The Coming Collapse of the Dollar.” HAI Managing Editor Drew Voros caught up with Turk to discuss central bank gold buying, the debasing of the dollar and why he favors silver over gold.

Hard Assets Investor: You’ve written that once silver crosses $35 an ounce, you expect it to hit $70 in two to three months. You're attributing this to a descending wedge price pattern. Could you explain this for readers?

James Turk: I said it would hit $68 to $70. And the descending wedge pattern is really only part of the overall analysis I’m resting this forecast on. I am both a technician as well as a fundamental analyst. The technicals are very good with this pattern that’s being formed. It looks very powerful. Silver was up 19 percent in January, so it’s been a great start for the year. But the fundamentals are also very bullish, which suggests to me that silver has significant upside potential once we take out this level. It’s just a combination of demand relative to limited supply. People are exiting currencies everywhere around the world and moving into the precious metals.

Another big factor is China, which up until 18 months to two years ago, was an exporter of silver. They’ve recently become an importer of silver. This is really changing the supply/demand equation for not only silver, but also for gold, because at about the same time, the Chinese have also become an importer of gold. Domestic production in China is no longer sufficient to handle domestic demand.

HAI: What’s driving the silver demand?

Turk: Silver is a bit more complicated than gold since it is both a monetary and an industrial metal. Demand for gold comes almost entirely because of its demand as money. Because silver has both a monetary and industrial demand, it’s more volatile than gold. But the basic driver is that silver is cheap relative to gold itself. At the moment, about 52 ounces of silver do the same thing as 1 ounce of gold, namely, in terms of providing protection of purchasing power with no counterparty risk. And historically, that ratio is normally about 16 ounces of silver to 1 ounce of gold.

As bullish as I am on gold going forward, I’m even more bullish on silver, because my expectation is that their ratio is going to continue to fall as this precious metals bull market continues to move forward. There is another technical factor that’s important regarding silver, aside from that chart pattern. Every bull market has three stages.

In stage one, you get the apathy, neglect and the worry. People just aren't paying attention, regardless of the fact that the item might be doing very well. So, for example, gold was in stage one of its bull market until it went over $1,000 an ounce, and then it went into stage two. And stage two is the longest. During stage two, more people become aware of the bull market. So more people start to understand the factors driving the bull market. And more and more people become involved. Stage three is the speculative stage, when everybody jumps in, and your neighbors are telling you to buy whatever the item happens to be.

Now silver, interestingly, is still in stage one of its bull market. And that’s why it gets so little attention worldwide, compared to gold, for example. But when silver goes above $50, it will be just as significant as when gold went above $1,000. Silver will be entering stage two of its bull market.