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Record high silver: Where do we go from here?

Silver prices reach a record $38 an ounce. Actual cost to mine: up to $7 or $8.

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Traders work in the gold and silver options trading pit on the floor at the New York Mercantile Exchange March 3, 2011. Silver prices have moved into record territory, where there's no history to guide traders or investors.

Brendan McDermid/Reuters/File

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By Lori Spechler, Senior Editor, CNBC.com

Silver soaring to another multi-decade high, where do we go from here? Nobody really knows but what I do know… is that it won't stay here. Why?

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Because there is just no financial basis for the price of silver to be at $38 an ounce and there is no real trading history on which to gauge strength and resistance.

No financial basis because the economics of mining silver put the actual cost at anywhere from $0 an ounce to $7, $8 or possibly as high as $15 an ounce. Miners should be selling here and locking in record profits or, hedging. No trading history means we are in no-man's land. There is no real trading history to suggest where pockets of strength and resistance may lie - expect big price swings and more volatility.

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One report today suggested resistance at $40—based on what? Charts from the Hunt Brothers run to $50 an ounce in 1980? Why not $50? In fact, that is more likely the psychological top than $40.

The analyst in the weekly metals report from Goldman Sachs says, "Given the recent market developments, we generally believe that much of the near-to-medium term cyclical upside for metals has already been priced in, while risks to current historically high market prices have become increasingly skewed to the downside."

There are clearly factors at work here that have nothing to do with cost or physical supply or demand. Whether those factors push us higher or lower is to be determined but, don't expect silver to be at $38 an ounce tomorrow.