Why you also need diversity whilst sitting tight through this volatility...

SEAN RAKHIMOV began focusing solely on the silver mining sector in 2001, after designing systems for investment banks, and launched SilverStrategies.com in 2004.

Today, in such volatile times for silver, he again advises staying the course, as he explains here to The Gold Report.

The Gold Report: Sean, this market for precious metals is testing the mettle of even diehard investors. How is the market testing your resolve?

Sean Rakhimov: It's as hard on me as it is on everyone else, with the caveat that this is the only market that I participate in. I'm guessing most other people are buying other things along with their precious metals portfolios. It's been very trying in the last couple of years, but particularly this year.

TGR: Let's say for a moment that you're a precious metals coach. Please provide investors with some inspiration.

Sean Rakhimov: It's not one-size-fits-all because times like these will identify your weaknesses in your outlook and convictions and exploit them. I am betting that a lot of investors are being shaken out of stocks. 

On the other hand, the demand for physical metal has been absolutely astounding. The lower the silver price goes, the higher the demand. Shortages have been reported pretty much all over the world in recent weeks. 

This provides an excellent opportunity. If investors haven't had exposure to precious metals at all, then they should start with the physical metal if they can find it. Otherwise, they need to prepare themselves for times like these, which will undoubtedly happen in the future. Learn from it and be prepared to not act like a victim and walk away from their positions when these situations happen again.

TGR: Has the performance of the market over the last two years or so ever made you consider doing something else for a living?

Sean Rakhimov: No. However, it did lead me to think that I need to diversify my assets somehow, particularly because some of these downturns have been very prolonged. It's a very unpleasant experience when you're not doing anything else and the market is virtually paralyzed with a downside bias. I don't plan to change careers though.

TGR: There are reports that the Chinese are buying gold at above the spot price. How long do you think that could continue?

Sean Rakhimov: It could continue for some time. Gold and silver are fear driven. When you buy gold and silver, you do it because you're not comfortable with your assets elsewhere. Despite the markets going up, particularly in North America, there is plenty of fear and discomfort. 

Part of my thesis is that some of this performance in the mainstream markets is inflation-driven because inflation doesn't always show up everywhere equally. It shows up exaggerated in certain sectors.

TGR: How has investing in the silver market changed during this downturn? 

Sean Rakhimov: If you want to be a little more sophisticated and dig a little deeper, you need to know a few things. I wrote an article a while ago discussing the overall size of the silver sector, "Silver Sector Shrinking". I was referring to two trends: Geopolitical considerations in some parts of the world, specifically Latin America (accounting for the greater portion of silver production), which result in resource nationalism; and mergers and acquisitions activity. 

The number of quality silver companies has been going down. Investors should be thinking about what deposit characteristics large silver companies are looking to buy. Not a lot of deposits have those characteristics; probably fewer than 10 would fit the criteria of most large silver companies. This premise is supported by the fact that in the last couple of years senior silver companies have been buying gold projects, which I submit is in large part due to lack of suitable silver targets. 

TGR: Do you follow silver investors?

Sean Rakhimov: I like a number of investors and respect their opinions, but there are not many who specialize in the silver space. 

Two of the better silver investors I know are long-time silver investor Ned Naylor-Leyland of Cheviot Asset Management and Ben Davies of Hinde Capital in London. A good friend, Dominic Frisby, also based in London, is another one. He's been covering this space for some time. He's very well informed and talks to a lot of industry experts for his radio show.

TGR: In a piece on SilverStrategies, Dominic Frisby wrote, "For all its volatility, for all the dark rumors of shortages and manipulation, silver trades in a remarkably symmetrical pattern." What does that mean?

Sean Rakhimov: I think he meant that most of the activity in the silver space can be explained without resorting to manipulation theories, allegations, etc. I am not a fan of manipulation and conspiracy theory. However, silver is such a small market, it wouldn't be difficult to manipulate if somebody wanted to. It wouldn't surprise me if these kinds of things happened from time to time. 

TGR: Doesn't the specter of manipulation hurt the investment thesis of silver? 

Sean Rakhimov: Manipulation, by nature, is short term. You do it for a specific purpose, in a specific time frame. Silver went from $5 per ounce to almost $50 per ounce in the last 10 years. If that involved manipulation, then it wasn't successful in the grand scheme of things. I don't think the metal market can be manipulated in the long term. That said, in the short term lower silver prices are negatively affecting the bottom line of silver producers. 

TGR: You've told readers of SilverStrategies that a "triple" is coming for patient silver investors. Could you explain?

Sean Rakhimov: The silver price can go up just as fast, or faster, than it goes down. A good example of that was the run it had in late 2010 and early 2011 when it tripled. I do expect a move similar to that after silver bottoms. There's a lot of pent-up demand. I am looking for silver to make a new high (over $50 per ounce) in the next 18 months. 

TGR: You suggest on SilverStrategies that silver is gold's little brother and they move in tandem. Are you expecting a similar rise for gold?

Sean Rakhimov: Similar, yes, but nowhere near the same in percentage terms. Gold might move on the order of a double when it does break out to new highs. As a guess its next stop could be around $2500 per ounce, however, I stress again that precious metal prices in the short term are driven by sentiment formed as a reaction to events elsewhere, such as geopolitical, currency problems, financial crises, disruptions in the oil market and so on, therefore, it is very hard to narrow price targets to specific numbers.

TGR: Do you have some final words for silver investors?

Sean Rakhimov: This is the time that investors find out who they are and why they are in the market. Investors need to think about why they buy or invest in silver mining companies. In my mind, there are no questions. Nothing has changed in the macro picture. We will see much higher silver prices in years to come. The cycle isn't played out by any stretch. There are a number of years left in this bull market, and the best is yet to come. 

TGR: Thanks, Sean.