Worst Case Scenario for Silver: Revisited

NEW YORK ( TheStreet) - A long time ago a wise man once said, "If you're going to be invested in physical silver and/or companies that mine silver, you need to be aware of the downside risk. Being ignorant to downside risk is like walking a tight-rope without a safety wire."

Okay, so it wasn't so long ago -- just this past November. And that wise man is your very own Resource Prospector (me).

I was referring to the worst case scenario for silver -- which, if we're going to be honest with ourselves, we need to face up to the facts that silver could reach multi-decade inflation-adjusted lows of under $6 an ounce.

I really doubt that we'll see $6 silver but that's not the point of this exercise.

ack when I made some predictions about silver in that November article, it was in the middle of a momentous straight-line bull market.

Nobody wanted to hear that silver could go down. In fact, I had many readers write in to tell me that it was completely absurd to even suggest that silver might dip below $22 an ounce ever again.

But my thesis for owning silver is not so rickety as to be shaken by even substantial corrections down to the $16-to-$18 range. Less than a year ago silver sold for $15 an ounce. I bought silver at that price, as well as at $17, $18 and on up the line.

If the market's masters of the universe want to push silver's price down for reasons of their own, I'm all too happy to take the other side and buy more physical silver and silver mining companies.

As I said back in November, "In the long term (which could be 10 to 20 years - or even longer) I expect that silver will absolutely crush the inflation adjusted high. Paper currency around the world all suffers from the same chronic, debilitating disease: It has no intrinsic value. Eventually, all currencies will go to zero. In such an event, it won't matter how many dollars it will cost to buy an ounce of silver. You'll simply want to hold silver.

So $130 or even $1,055 silver isn't out of the question.

But for the short term, I expect silver will stay between $19 and $30 an ounce. My short-term timeline is 3 to 6 months."

As I said, we know it's within the realm of possibilities that silver could drop to $6 an ounce. And over the past month, it's dropped from over $30 an ounce back down to below $27 an ounce. Unlike in November, right now people are terrified about how low silver could go. You probably know Warren Buffett's quote about being greedy when others are fearful, etc. by heart, so I won't bore you with another re-tread.

But it's time to start getting greedy with silver. Back in November I told you that I'd be buying more and more silver the closer it got to $19 an ounce.

My plans haven't changed, and why should they? Have governments and central banks adopted anything close to fiscal and monetary responsibility? Is there a single OECD nation that's not plagued with huge amounts of debt?

Is any western nation experiencing the type of growth or stock market stability that makes me excited to plow under my gold and silver holdings to buy the broad market?

The answers are all no.

Until some of them start looking like yes's or maybes, then you know how I'll be directing my personal finances.

Good investing,

Kevin McElroy, editor of Resource Prospector

Wyatt Investment Research, founded in 2001 as a publisher of newsletters, offers independent investment research of financial markets, stocks, bonds, ETFs and mutual funds to about 250,000 individual investors. The company is led by founder Ian Wyatt, who serves as publisher and chief investment strategist.

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