I sold about 44% of my investment in silver this morning. The decision was one I had been mulling over for several days. Specifically, I had become aware that the fundamentals had changed since I made my first investment in early 2005. At that time demand was believed to be greater than supply with the shortage being met by selling government stock piles. Since then, the fundamentals have changed. On the supply side new mines are being developed (either silver mines or base metal mines that produce silver as a by product) and the expected growth in demand from new applications (in the technology and medical fields) has been slower to develop than expected. As a result the market has moved into a situation where supply now exceeds demand.
The catalyst for selling part of my position was a report prepared by HSBC on precious metals which I received overnight. The HSBC report forecast sharply lower prices for silver (USD14.00 /oz in 2008, USD13.50/oz in 2009 and USD12.75/oz in 2010). Current prices are around USD16.30/oz. The HSBC report expresses the view that the rise in the price of silver is largely due to investment demand for precious metals generally including by the silver ETF absorbing a considerable amount of physical silver.
The conclusion I reached was that in order to continue holding silver I would need to believe that (i) investment demand (rather than end user demand) would continue and would actually grow to absorb the expected increase in supply and/or (ii) that the expected supply and demand figures are simply wrong.
I am actually considering exiting the position completely, but wish to spend another day or two thinking about it before doing so.
The other factor weighing on my mind is the possibility that I may have become emotionally wedded to this investment. It has been good to me, but that is not of itself good enough justification to retain the position.
My original poistion was opened in January 2005 at UD6.63. Since then I have added to the position in small amounts at irregular intervals. The weighted average cost was UD8.90.