Monday, April 11, 2011

Silver's Unrelenting March Higher

The current Silver rally is exhilarating. 

Even as I write this the chart I've used below is basically out of date with Silver having soared higher to almost US$42 during Asian trade today, only around $8 below it's all time nominal high of $50 set in January 1980.

While it has experienced several small corrections along the way, it is obvious that this spike higher in price differs to those seen previously in the bull market, such as those in 2004, 2006 and 2008. Look at a 10 year Silver chart and the current move looks parabolic.

Every dip is being bought. Some dips are literally lasting only hours. This from April 1st:

Here's a chart type that I used a little while back to show the difference between the bull market in the 1970s vs today. A few months on and we've seen only one slightly negative month over 8 months of strong moves higher and it's looking like April will be no exception. 

This strength of move has no precedent in the current bull market. It makes me wonder whether we are heading into a power move the likes of which we haven't seen since the 1970s. For example in the 1970s run there were 3 separate monthly occasions where Silver rose 40% month on month (using the same month on month London fix average). The last two times were shortly before the final 1980 peak.

This move also concerns me. 

We have increasing coverage of the rally by mainstream media sources, as well as suggestions that Silver is entering a new paradigm:
    * Demand is expected to outstrip production growth. BMO Research analysis indicates silver demand & supply fundamentals should remain positive to the end of 2012E.

    * The prospects of further quantitative easing combined with sovereign debt concerns, competitive ‘fiat’ currency devaluation in western economies, and the return of inflation could result in investment demand exceeding BMO Research’s projections and extending the supply deficit through 2014E.

    * This shift in the supply/demand dynamic lies in contrast to the broader investment perception for silver, which is rooted in the 1990’s when the metal was in abundance, driven by the demise of the photographic industry and Chinese selling.

    * The paradigm shift for silver suggests that the traditional benchmarks for silver, such as the long-term historical ratio with gold, are no longer valid.

    * Accordingly, the markets are searching for a new set of criteria against which to benchmark the price of silver, with a bias to the upside.

BMO Capital Markets
Is this just an increase in mainstream support for Silver as we enter the media attention phase of the bull market or is this the start of the mania...?

Some questions that are running through my mind at this time:

- Is this a parabolic spike or the start of THE parabolic move to end the Silver bull market?

- Does Silver necessarily have to peak at the same time as Gold this time around?

- What does the end of QE2 mean for Silver if QE3 does not immediately follow (a gap is looking more likely everyday)?

- Could this information age see the mania phase of the bull market occur at a faster pace than most expect?


Disclosure: Positions held in Silver. Not investment advice. Do your own research.


  1. I wouldn't worry too much.

    The hallmarks of the "mania" phase for either the investment community or the general public are not present. The coverage of and discussion of silver I've seen from the mainstream tends to be of the "interesting spectacle" variety -- not actually a major push into silver as an investment, nor even really entertaining that thought.

    The price action we are seeing is a result of the *very beginnings* of the investment community getting into silver. Because of the legacy large concentrated short position in silver, it was inevitable we'd hit a "fireworks" phase when the new investment buying overran the additional shorting. So the recent-months big move in prices are really due IMO more to that short position blowing up than a new surge in buying.

    That said, investment buying is still ramping up, and presumably large moves into silver in the investment world, say comparable to some high-profile hedge fund moves into gold in the last 2 years, would most likely double or quadruple the silver price from here.

    Only after that point will the buying start to catch on in the general public. It is difficult to time that, however, because the response to gold/silver/commodities from officialdom and the media (and in favor of failed sectors like the housing market and equities in general) is so hostile that it has been extending the usual investing cycle out indefinitely.

    So it is better to look for the hallmarks of that mania rather than predict a timing.

  2. @ BB
    "This strength of move has no precedent in the current bull market. It makes me wonder whether we are heading into a power move the likes of which we haven't seen since the 1970s. "

    IMO we have clearly moved into a phase transition that takes us back to a "money" society, etymologically defined which indicates, has been my stated position since 2005, that a major Dark Age is about to be expressed demographically across the face of the planet. This Dark Age will be far worse than that of the 14th. Century and will serve, through opportunity, to allow the changing of the guard in all aspects of our socio-economic systems and a return to humanity and "values".

    There is no doubt at all, that those today in bureaucracy, institutions and th'ungs political have no idea as to what is happening as their belief in today doesn't even allow them a forward vision of + (more than) 15 minutes - in matters of governance and importance.

    Silver and Gold soars but where in fact, the increase in prices really signify the collapse of all values in today's social intercourse and today's 'status quo'.

    Should you consider that Silver is real money, then etymological, money is defined as 'monitor', being derived from the Temple of Juno, Jupiter's wife (Goddess) of Rome whose geese saved Rome from the enemy's intended slaughter of the night.

    Money is that which one monitors the socio-economy and paper fiat just doesn't make the grade.

    So expect the dollar values of Silver and Gold to soar and where Silver is gaining on Gold, until that time that fiat currencies are done. At that time I recommend having a new exchange promissory system in place. Let us not put our trust in those who cannot foresee today's state for this role.

    Ho hum

  3. Relentless or Unrelenting.. Unrelentless isn't a word.

    sorry, can't help my self, love, Blockhead from SS xoxo

  4. @ glasnost, I agree with some of what you say, probably some of the interest and price movement in Silver is being caused by professional investment demand. However retail sized forms of Silver (e.g. 1oz to 100oz products) are also being bought and hoarded en masse. IMO this could easily be the start of the mania in Silver.

    @ Blockhead, thanks :)

  5. @ BB
    I send you this FYI - as it supports my position on Bullion prices

    " "Over time, the price of gold will rise in proportion to the creation of paper dollars. In an inflationary environment where the demand for protection increases, the price of gold can rise even further. Historically, gold has always been a safe haven against inflation and a safe haven in times of political instability. Today we face both risks."


  6. Just going through some of the threads on Silver Stackers. There are actually quite a few expecting spot silver to go as high as US$500, another few expecting 4 digits. Quite astronomical considering we are fairly close to historical peak (albeit not inflation adjusted). Any thoughts?

  7. Anon, I had a look at Silver/Oil ratios that shows a possible outcome based on $200 oil that may interest:

    Suggesting a price over $200oz might be possible. Personally I think $500 would be unlikely (at least during the current bull market).

    In my opinion we are in the final phase of the bull market for Gold/Silver, we will likely see Silver multiply several times before the peak, probably resulting in a price over $100oz, but I think many of those waiting for much higher prices will be burned.


  8. Cheers BB.

    Great blog you have here. Keep up the good work. I have long been a gold bull and property bear. The silver story has been quite interesting of late. I must say though, silver has substantially outperformed gold in recent times, but there is barely any mainstream media coverage on this, as opposed to gold which seems to get at least some coverage (but not mania as yet).