SILVER IS TRACING OUT 1980 POST-BUBBLE PATTERN

Tom McClellan – McClellan Market Report

comparing 1980 and 2011 silver tops

Chart pattern analogs have long been a popular way to get an insight into future price structures.  When you see a structure in the current market that looks a lot like a structure in a previous period, then you can use the data from that previous period to look ahead to what current prices might do, assuming that the pattern resemblance continues.

It is a standard principle of science that experiments should be repeatable. The rules of physics should operate the same way everywhere.  So if you drop a brand new tennis ball in New York, it should bounce the same way that a brand new tennis ball bounces in Melbourne. The rules of market physics are a lot different and often more variable than the rules for the physical world, but the presumption behind chart pattern analogs is that if you are seeing the same behavior, then the same sorts of inputs and rules of motion are at work.

This week’s chart takes a look back at the silver bubble of 1980.  That famous episode resulted from an attempt by brothers William Herbert Hunt and Nelson Bunker Hunt to corner the silver market.  Prior to the run up, silver prices had been trading in the high single digits, then jumped up to between $15 and $20 before starting a parabolic move to $50.  At the point when silver hit $50/oz, the CFTC and the Chicago Mercantile Exchange intervened with restrictions on position sizes and higher margin requirements.  That effort broke the Hunt’s corner play, forcing traders to sell to meet margin calls.  The initial decline took silver futures down from an intraday high of $50.36 to a low $30.25 in just 3 days, and to a more solid intraday low of $33.10 6 trading days after the top.  Just 2 months later, silver was back down below $20.

I have not read it yet, but my friend Ian McAvity recommends the book Beyond Greed by Stephen Fay for insights on that whole 1980 silver bubble episode.  Ian has been writing the newsletter Deliberations since shortly after the earth’s crust cooled, and he is a well known expert on the precious metals markets.

I thought it would be interesting to see how the silver top of 2011 might compare to that 1980 episode.  One big point of similarity between the two events has been the efforts of the CME Group (successor to the Chicago Mercantile Exchange) to raise margin requirements for futures traders in order to curtail excessive speculation.  And the $50/oz level appears to have been the price that the CME group wanted to defend, just as in the 1980 episode.  Like the 1980 example, silver’s first stop on the way down from $50 was an intraday low at $33.54 just 6 trading days after the top.

The key point of difference between the two periods in this comparison is that I had to bend time a little bit in order to align the other chart structures.  The patterns look the same, but the current silver market is taking about 20% longer to trace out the same dance steps. The vertical grid lines in each chart are spaced 21 trading days apart (1 month), but the horizontal spacing of those lines is different in the two charts.

Why the current structure is taking 20% longer to make the same moves is an interesting question, but for as long as the price patterns continue to correlate we don’t really need to find a precise answer.  It may be that changes since 1980 in what I like to call the “viscosity of money” are responsible for this change in the rate of price pattern progression, just as the action of a water filled wave pool would be different from one filled with some other fluid.

Looking ahead, if the current silver market keeps following the pattern made by silver prices in 1980, then we should look for a resumption of the decline starting in late June.


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The McClellan Market Report and its companion Daily Edition are produced by Sherman McClellan and Tom McClellan. Both are technical analysts and educators whose innovative insights have helped countless investors succeed. The McClellans' work has been repeatedly quoted in Barron's, and their market timing signals have ranked them in the top ten timers for both intermediate and long term by Timer Digest.

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  • SS

    Is it a fair comp without equal timeframes?

  • Frenchy

    Cullen, my lack of experience in technical analysis makes me wonder if this is really relevant. When you think about it, things are never “the same” simply because we evolve so much and so many things are different today than from the 80’s. In your opinion and according to your own personal experience, do you believe in this analysis your are providing here and why?

    Regards.

  • DanH

    This piece isnt by cullen.

  • http://www.pragcap.com Cullen Roche

    I didn’t write this piece, but I use technical analysis more as a supplement to fundamental analysis. It’s like reading a book. The real meat is in the words, but pictures can be quite helpful in visualizing and understanding the data. Of course, being able to understand history (which is a big part of TA) helps enormously….But would I rely on it alone? No.

  • Frenchy

    Oh yes I know you didn’t, I just meant the post in general sorry.
    Thanks for the feedback.

  • http://www.pragcap.com Cullen Roche

    Sure thing. Have a good weekend.

  • Franky

    Hi Cullen. I’m new here. Do you believe your analysis to be accurate considering you use nominal prices rather than inflation adjusted prices?

    Also, would one not need to consider how the situations are different considering
    1) U.S national debt (and the debt of many other developed countries
    2)The extreme increase in silver’s industrial use (without a corresponding increase in silver mining) – ie a net decrease in available silver
    3) a voracious increase in silver demand from investors

  • Chaku

    It is stupid to follow this analysis because pf following reasons:

    1) It is 2011 and that means it is not 1980’s economy.

    2) Along with passing of time, the rates of commodities including precious metals have gone higher. I think Silver should touch a new high, may be $60-$65 in the next run to prove this analysis wrong. It should get steady around 38$-39$ an ounce.

  • Paul Mineiro

    Wow, Volcker and Bernanke are completely different (as they should be: they are facing different problem). If the fed funds rate hit 20%, no-yielding PMs would have a completely different (lack of) value proposition.

    I’d be surprised if history even rhymes here.

  • http://www.magicmoneycard.com Regina

    Everyone is so obsessed by 1980. EVERYTHING has went to new and higher price levels since 1980, but all these shorters seem to think the 1980 crash has to repeat it self! They didn’t do they same shotty comparisons to gold which has remained at it’s higher valuations.
    This is junk.

  • Bear Stearns

    Im sorry to say this analysis will hand your head on a platter. This is not akin to comparing apples to ornages but more like comparing apples to elephants. To begin with comex did not raise margin requirements to nail the Hunt brothers but they went into liquidation only mode. That meant that the only accepted trading allowed was selling, bids disappeared finding support $15 lower (guess who?). Do your own research to find out. Thanks for trying though.

  • Gene Livingston

    When the charts STOP paralleling (assuming they are in the first place) the 79-80 chart, will do you a followup article? Since charts have a fractal nature, expanding/contracting the time-frame is problematic at best. The real issue though is the mentality of thinking you can predict the future, and doing that by using little more than chicken bones and bits of string. When you get your hands on a DeLorean Time Machine, then you might be onto something.

  • http://www.condoroptions.com Frank Caruthers

    Silver is precisely tracing out the bubble model developed by Didier Sornette–price swings logarithmically increasing in amplitude and frequency, pointing to a “critical” time point of instability where a crash is likely (not guaranteed, but that’s what seems to be playing out in this case). What follows in Sornette’s model is an inverse of the pattern that lead up to t-sub-c. C’mon–is there any *credible* analyst who really thinks silver is worth more than $25/oz? With no demand growth and long-term inflation near zero?

    I expect at least one comment citing Sornette’s “miss” when he predicted another down leg early in 2003, so I’ll address that right here and now: The model predicts critical instability time points, which, Sornette is quite specific in explaining, do not necessarily result in crashes.

    Oh, yeah–gold is next:

    http://seekingalpha.com/article/244036-will-the-gold-bubble-burst-in-2011

    http://stockcharts.com/h-sc/ui?s=$GOLD&p=M&st=1994-01-01&en=(today)&id=p70533570118&a=177999886

  • Klevera

    Hey folks,
    In terms of TA, the first assumption is that everything is priced in charts. Someone argues that you can’t predict future with the data from the past but all the data we have stem from the past. So the argument of TA doesn’t sound appealing if one argues with those two reasons. I think that nobody knows exactly how it is going to play out at this moment. But often times past price movement provides good guidance. Do not be so dogmatic about the potential of silver. In every bull market, there is fluctuation of prices.

  • boatman

    there are totally different reasons for the run up in the first place…

    this run up starts again….if it already hasn’t.

  • http://yahoo.com Megiddo

    Unfair comparison…the two events have little in common. A six month review shows Silver is in a position of 28.6% gain (at the moment) from SIX months ago. December 9th, 2010 thru 0800 hrs June 6th, 2011. It rose too fast…some panicked; some got greedy…it has stabilized and continues to be a great investment…BUY PHYSICAL…make the paper people produce what they don’t have.

  • http://seriously? thebark

    wow…this could be the stupidest articles I`ve seen in awhile. The motives and causes of the silver moves in the 80`s in NO way reflect whats going on today. In the 80`s the Hunt bros were attempting to corner the market…today we are watching a global collapse of fiat currencies. Completely different crowd playing this time around. The move to physical gold and silver is GLOBAL…and its not going away. At this point we are mearly arguing about the bar tab on the Titanic.

  • Federalist45

    “This time it’s different.” If you have not heard that, you will. If you have not considered it, you need to. The position of the U.S. government in 1980 was bad. From FDR through Jimmy Carter, Presidents and Congresses had gone crazy buying votes with taxpayer money. But as a matter of degree, it was peanuts compared to what the GWB and BHO administations and their Congresses have given us. Peanuts. Much of the silver buying today is by true believers in the SHTF/TEOTWAWKI reality. They will keep buying. And, for as long as BHO and Congress dilly-dallies will debt, deficits, and higher taxes, more people will become true believers. This time it’s different. This time, there are millions of people buying out of fear for their futures–and tens of millions will enter the market in the months to come.

  • je

    When I see an article so far from reality I have to think it is just a sentiment check.

    I’ll take tech analysis anyday over fundamentals because there seems to be so much information that is unknown but it is in the price.

  • magncarta

    As an investor in AG since 1964 I can assure you that this is different. As far as inflation is concerned the dollar has dropped over 25% since 2000 and it will continue as the Elite Ruling Criminal Class have no intention of changing thier looting of the American people. Silver is a store of wealth more so today than at anytime in our history.
    Personnaly I don’t care how much others own as I keep 60% of my assets in AU and AG and I sell rarely and buy aften

  • DaveNJ

    Agree with Bear Stearns comments. Sometimes people who like charts have to incorporate some common sense.

  • Matt

    Technical patterns can be a great tool, but they should be used as a fine-tuning tool to your investment approach. Market sentiment and market trends never be forgotten.

    If everything was determined by an algorithm, then there wouldn’t be any star investors, because everyone could just plug in the numbers, go on vacation, and forget the account. However, we all know it doesn’t work that way.

  • Dierkster

    The margin rates were raised so that J.P. Morgan and company could cover their short position, or in another words cover their asses! It was not done to curtail speculation as this author suggests. Either the author is un aware of the currupt nature of the markets or he is covering up for the crimex, that is comex. I am horrified by the utter audacity of those in power and the blatant way they go about their buisness. It’s as if we are sheep waiting to be slaughtered….oh wait…we are!!

  • gmiller

    Not an “apples-to-apples” comparison.

    The situation in 1980, when the Hunt Bros. were in their heyday, is very different from today.

    1. Inflation has more than halved the value of the dollar, even according to the jiggered CPI, so $100 is the new $50. Silver is at a third of what it was at the 1980 peak.

    2. The financial situation is far more serious than 1980. We have $14T in debt, with another $100T in unfunded liabilities. Obama and Congress are running a $1.67T deficit- 40% of the govt spending that they are admitting. There are other “secret commitments, with no end in sight. Federal tax revenues are only 60% of expenditures, they are literally creating dollars (not really money) out of thin air. Commercial and personal debt is only a little off all-time highs. Real estate is dead. Banks are actually insolvent, but pretending to be fine by abandoning mark-to-market accounting and accepting trillions in nearly free “money” from the Federal Reserve.

    3. There are an estimated $600- $1000+T in derivatives, which will be triggered upon defaults or interest rate rises, which could take most of the world down.

    4. Foreign creditors are abandoning the dollar and clearing transactions in other currencies, reducing the role of the dollar as THE reserve currency.

    5. Other nations have similar problems. The Euro is similarly overextended. China is heavily depend upon America and Europe. Its currency is pegged to the dollar.

    6. Since silver was severly undervalued, since the dollar is tanking, since our “leaders” are destroyiong our economy and money, since silver was currency and money and will be again, I think it has a good future.

    I would not be surprised if the manipulators and a general downturn brought it down temporarily again. They showed their power to do that in 2008.

  • Captain Mike

    You got that right. This runup wasn’t engineered by two people as a raid on a trading system. Demand from millions is draining physical supply. The speculators jumed on, and the casino bosses forced then out quick. It won’t stop the little guys from buying silver eagles. Especially at a good price.

  • Richard

    It’s tough to make Predictions, especially when it’s about the future.

    Financial oomparative analysis of the past to the future is sometimes the assumption in the ‘Law of Ground Hog Day’?

    The future ain’t what it used to be, nor is it always ours to see; however, it is ours to experience – be prepared.

    The electronic zeros today are not worth as much as the zeros from the past – think about it.

    Nothing from nothing still equals nothing!!

    Static is not Static. Shocking, isn’t it.

  • http://mehalo24@msn.com ARCHANGEL

    The government and the criminal banks will be exposed for what they have and are doing in the pm markets. It will cause the global population to take the metal prices to the heavens. You have been warned!

  • donald

    Many are saying ‘not a fair comparison’ and I agree for many reasons, the primary one the drop in the dollar these past thirty-plus years.

  • DenisO

    The only thing that is common between the two drops is the action of the Regulators (Government) to halt the advance. That is significant, but the charts, as always with Ian McAvity, are thrown in for cosmetic purposes, mainly. They don’t tell us when or where Ag is going. He too often uses them to justify gut feelings. (I subscribed during Carter’s term).
    Computer trading is much more powerful today, and the trend being broken forced the “programs” to be halted. Different ball game for awhile, and the Public is not yet in the game, as far as I can see. Photography is no longer a major demand support, so the present strength looks to me as more solid than back then, with the Hunts driving a small commodity market.
    I expected (hoped) to see the drop continue to a small support area around $28-$30, but more strength is being shown than I expected.
    I will add if it gets below $30, but it doesn’t look like that’s in the cards. When a market is rigged, confidence is definitely going to be rare, but there is no selling pressure; just caution and holding.
    Regards,

  • djm

    Why is it that experts do not consider two very significant factors in projecting trends in silver:
    1. Since the 80s, we have had inflation to the tune of over 120%. That fact alone, if applied to the $50 price of silver says the peak should be $110 per oz to be equivalent in todays dollars (pitiful currency policies).

    2. In contrast to the 50s, guess what,there are hundreds of millions more folks who are aware of silver and gold…India and China. Tell them their currencies and especially the dollar are as good as gold (or silver).

    It is time for the pundants to wake up and consider all the factors and not just some convenient number representing a disconnect with the economic world today.

  • Anonymous

    This is nonsense.

  • DJF

    Why did you not make a comparison of charts from the ’04, ’06, and ’08 peaks in silver? Is it because these similar chart patterns do not support your conclusion?

  • Bob

    I simply can’t understand why so many so-called experts don’t see the obvious: the dollar is well on the way to worthlessness, and economics 101 says that when demand exceeds supply, prices go up. The only reason the price of silver is not much higher is because of manipulation by the shorts (JP Morgan/Chase and a few others) and to their everlasting shame, the COMEX and Geitner. They were hoping the manipulation that caused the recent decline would cause much steeper losses, but the supply/demand fundamentals are stronger than their deceit. I’m staying long on silver.

  • boatman

    roggie that cap’n…….the kicker will be in the final moves at the announcement of QEXX when the GLD n SLV people realize ‘that’ paper is more empty promises in a debt/print spiral.

    when GLD is going down n phys is going up—the beginning of the parabolic move.

  • http://pragcap.com Dan

    What a crock!!
    Times they are a changin!

    We live in unique times with unique forces at play.

    Any similarity in squiggles on a chart are coincidence.

  • http://www.restorethebalance.us Glenn Neal

    You think it is the same situation?
    In the 1980s two greedy rich men tried manipulate the market up for profit;
    Now mom, dad, and grandma are in the market because they believe the country has an unsustainable debt, and Goldman Sachs is trying to manipulate the market down to cover their shorts.

  • Mark Meltz

    The Chinese are telling their citizens to buy and hold silver and gold. If everybody in China buys 3 ounces of silver what will that do to the market? Physical demand has out striped production. A lot of scrap has been recycled. That supply will taper off. The US mint cannot make coins to supply demand. They are having trouble buying silver blanks that are made in Canada.

  • Al Toronto

    Not bad, but your timing and pricing are off. If you equalize prices by inflation and back up your comparison just one year, the charts are nearly identical. Today’s $50 price is equivalent to 1979’s $7.50. We are moving into a parabolic blow-off over the next two years. The fireworks have just begun.

  • T. Blazedman

    Holy crap. Cullen posts a link that posits one possible outcome by comparison in chart form…..which he does from time to time regarding various sectors…..but by simply choosing silver this time magically turns this post into something normally reserved for ZH. lol.

    It’s for education….you don’t necessarily have to agree with it, and no it may not be right in the end, but it’s not meant to be taken as a personal insult either.

  • http://www.pragcap.com Cullen Roche

    Guys, THIS IS NOT MY ARTICLE! Look at the author…..

  • honestann

    This is the most absurd idea I’ve heard in a long, long time. It presumes that there is no difference between one guy (Hunt) and a billion people worldwide. Further it presumes there is no difference between 1980 when China and India were poorer than poor and had no ability or interest to buy astronomical quantities of silver (and gold).

    This kind of chart fanaticism is completely insane. The circumstances are so massively different, that comparing charts in this way is totally delusional. The comments about gravity being gravity everywhere and everytime is correct. However that does NOT stop airplanes or helicopters or jetpacks from flying when very difference circumstances arise (wildly different knowledge and behavior).

    Just ignore this article. It is absurd.

  • SLA-mdunk

    Silver still in the thirties!

    Great! Let’s get physical, physical.

    Cheers yall.
    SLA-mdunk in Oz.

  • DMRII

    I don’t want to speculate as to the validity of these charts, but it looks like it might be fun to sell short a little silver around June 23-25 just to see what happens.

  • fallingman

    Weak.

    Looking for a repeating pattern, especially 30 years removed, is the lamest kind of “analysis.” I used to look for this kind of stuff…and be impressed by it… when I was young, but over time you become aware that it’s just wishful thinking 90+% of the time.

    Silver may take another hit. Dunno. I kinda doubt it, but anyone who acts based on this booos*#@ is either unsophisticated or a dope.

  • http://NONe Jim Nielsen

    I both cases we have and now are dealing with market manipulation where the Gov allows things to happen in a cirtain way and then changes the rules in mid Game.
    In ’79 and ’80 the hunt bros were looking to make a killing in the silver market and were well on their way to success until the Gov/fed changed the rules.
    The big difference this time is that many americans are buying Gold and Silver to protect themselve from the Gov/Fed apperant attempt to inflate their way out of a problem of their own doing.

    Today Fed Ch Bernanki spent a couple of hours “explaining ” why the dollar is weak as is the economy. The thousands of words could easly been saved as with the time he spent with 3 words that could have been spoken in about 1 to 2 seconds.

    THE PRINTING PRESS.

  • http://NONe Jim Nielsen

    Hey Dan. Like the navigator on the Titanic. He new exactly where he was when they Hit The Iceburg.
    Also like your discription as Sqigles on the chart.
    Jim

  • Obeserver On The Hill

    How does the Hunt brothers trying to corner the silver market and the collapse of paper currencies worldwide have anything to do with one another ?

  • Klevera

    The fear of Ben was the bids underneath this huge run-up. Ben is taking a vacation and there is no political support for Qe3 now we might have to look out below not up

  • bubba

    wises man in bible – nothing new under sun – what has been will be -0 yel- it is diff this time -heard that one before- you brain washed longs jp morgan has blank check to short gold and silver from the fed res stay long now it will help my shorts

  • Gary

    I agree, if the dollar goes down, silver goes up, the dollar is not going to get better, the dollar will decline, may see some dead cat bounces along the way, but silver is going to go up, people are buying physical silver and noone is selling it back, per the retail markets, they call in for orders to buy, but they get no help from individual owners they all hang on to it, noone will want those overprinted paper counterfeit dollars they create everytime they run out of options.

  • http://oilrigjobsnoexperience.co Tim Singleton

    You bears are all correct. Sell all your silver now! Get out while you still can!

    Inflation is near zero. Wow, what a statement.

    Here are a few more like statements: The government has quit borrowing money, it has quit adding funny zeros to the end of government checking accounts, and soon Federal spending will be brought under control and there is no threat to the dollar’s position as the reserve currency.

    I am SO glad I read this article and the comments so that I can get out of silver before it goes back to $7 an ounce.

  • Peter Neaman

    The naïveté of the “analysis” is actually amusing! How about an alternative, I think equally likely explanation, to wit:

    For the CME to raise margin requirements THREE TIMES in one week can just as well be construed as slavish acquiescence to the wishes/interests of JPM — with it’s thousands upon thousands of NAKED shorts on silver — along with their confrere banksters . . . and our “bought-and-paid-for” legislature and executive.

    Even more amusing is the pitiful price our hack pols extract for doing the bidding of the billionaires. Will wonders never cease???

  • mmmggg

    The author of the article is exactly right. The curves superimpose almost perfectly, which ensures that a silver crash is absolutely imminent. SELL before your head is handed to you on a broker’s statement. Get out for God’s sake, while you still can. Run, don’t walk, to the nearest exit before TSHTF.
    Meanwhile, I will continue to make a small fortune by acquiring Oct 40 calls as you drop my price, based on the fundamentals mentioned by persons smarter than myself, above.
    The only thing in common between the two curves pictured is that they both go up and down. Beyond that, I wonder. I restrict my technical analysis to the observation of the price in relation to the Bollinger bands, as they seem to predict market hysteria, and apathy, pretty well over the short term, and give me a decent idea of buy-in or drop-out prices.

  • ksee

    the s&*^ has hit the roof….. i think this article is spot on…
    its never the same reason… u cannot have another hunt brothers, but the the result will be the same…. silver will propbably come to 26 $ before it stabilizes….

  • http://www.BestPriceOnSilverGold.com John

    Franky,

    Also, would one not need to consider how the situations are different considering
    1) U.S national debt (and the debt of many other developed countries
    2)The extreme increase in silver’s industrial use (without a corresponding increase in silver mining) – ie a net decrease in available silver
    3) a voracious increase in silver demand from investors

    All excellent points. Soon people will wake up to the real story.
    History will repeat itself but not in the way of 1980. With the continued debasement of world currencies, including and especially our own dollar, precious metals and particularly Silver will experience much higher prices.

    For more information: http://www.BestPriceOnSilverGold.com

  • http://x J.S.

    Absolutely right. Silver will never trade at value until shorts are stopped from trading in the ground ore as if it were a refined product.

  • Doug L.

    Although this article is interesting,it does not account for two reasons why the the 1980 bubble & crash differ from 2011: 1) The USD of today does not even remotely compare with the 1880 dollar. 2)In 1980 the USA was still using her natural resources to manufacture products and goods made of steel,aluminum, copper,plastic, cotton etc. The profound expansion of government agencies with their regulations have all but stopped mining, refining, and manufacturing and have even severely encumbranced agriculture (while even subsidizing the same). Today, America consumes far more than she produces and has even stopped manufacturing some products altogether (light bulbs?)This simply cannot continue without moving her to the third world. The country is broke and too far in debt to even find a way out without suspending the government regulations and engaging in a new world war. I will continue to buy and hold silver.

  • bigpossum

    An anecdote from that time when I had just taken a sabbatical from the trading pit and moved to Vail where I met Herb Hunt. While the price was still under 10 bucks, he asked me what I thought about silver. I told him that I didn’t want to think about commodities. What I should have said was, “What do you think about silver, Herb?” But I didn’t and I probably would have wound up losing money on the “liquidation only” condition.

    Another anecdote: Occidental Petroleum owned a lot of shut down silver mines in the Rockies that had proven reserves in the ground. When the price got into the upper stratosphere, the company president, Armand Hammer, began selling futures and told his people to start opening the mines again, but before they could bring production on line, the price broke, Hammer covered his “short” position, made millions without mining an ounce and told his boys to shut ‘em down again.
    I imagine the same scenario played out this time with different players.

  • Joseph E Fasciani

    Of all the commentators, Bob is I think the most succinct w/the most correct responses. He did not have the benefit of knowing that here in Canada the black swan has arrived w/the exposure of Nadler’s Ponzi scheme at KITCO, which has the potential to cause an immense upheaval worldwide in Silver first, then Gold.

    You can follow it at this url: Revenu Quebec Investigates Gold Fraud:
    http://business.financialpost.com/2011/06/10/revenue-quebec-investigates-massive-gold-fraud/
    which came out only on Friday, 11th June, here in Canada.

    As always, TPTB release these epochal notices on Fridays or during the weekend, which allows them to get their guns in place before the markets open.

    Finally, margins and other aspects of the metal trades can be adjusted ad infinitum, but what ultimately matters is whether the metal is delivered. PERIOD. Either it’s there or it is not.

    No matter how much scrap and salvage S comes out of the woodwork when the price hits highs, there’s always some held back by those seeking a higher price, perhaps because for them its presence is an article of faith in ultimate realities, and part of their life’s survival. And the cycle renews itself….

  • http://myronswinningjuniors.comstillunderconstruction Myron Martin

    And so the bulls/bears battle continues. Silver (and gold) will always fluctuate based on opposing points of view, but as others have already pointed out, the insidious intrusion of INFLATION totally skews any valid comparison. The situation now compared to 1980 are SO DIFFERENT the chart comparisons are virtually meaningless.

    Fundamentals are a much more reliable guide than charts based on history. DEMAND has been enhanced by millions of new middle class investors encouraged by their government to invest in gold and silver because the Chinese government holding billions in U.S. Treasuries realizes the jig is up and any future world currency MUST have hard asset backing.

    Smart people all over the world are coming to the realization that the experiment with fiat currencies since the 1971 closing of the gold window by Pres. Nixon has been an abject failure and are voting with their wallets to protect their PERSONAL position knowing they can not trust any government promises or FED Reserve actions.

  • David Binkowski

    I have also seen the technical possibility of a further dip in silver (down somewhere into the $20 to $28 zone) – but likely in the mid to higher $20’s than near $20 itself. Face it, any support above $20 still keeps silver in a structural bull market anyway. The only people saying silver cannot go lower are people who are wearing a ton of it and are afraid it might go lower because they have no money left to buy more… I adimt it can go EITHER way in the short term – but in the long term I believe its going in only one direction (up)…

    HOWEVER, fundamentally I see a whole different picture, that makes me astonished silver is even holding down here under $40. It should hit $50, break it, and run to the $75 zone easily once it finds its base here somewhere between $20 and $40. In 1980 there was almost FIFTY TIMES this level of worldwide capital invested in silver. Today there is not yet any investment in silver. Maybe 7/1000ths of one percent of global cap is invested in silver. Thats 0.007%. which for all intents, may as well be zero. So this is not the bursting of a bubble – this is what Comex and the powers that be are trying to SIMULATE. Its an echo from the past that they are playing on to keep people AWAY from silver. I don’t see people in lines to buy silver – and if there are no lines, there is no bubble. Every time I have gone to buy silver since May (sometimes I go multiple times per week) I am the only one in the place. The week silver was near $50 the coin shops were FULL. I know because I walked into them occasionally to see how many people were there buying. I avoid lines by my nature, so I rarely bought during that timeframe – I hate crowds, put simply. So that tends to keep me out of trouble in the stock market too. I only bought a few coins here and there between $40 to $50. Maybe one full roll here and there – but NOTHING like when silver dropped 30% – I hit silver hard after that drop. Any 30% drop should be bought as hard as possible – and even harder if it turns into a 50% drop – those do not come around often. In the past 10 years maybe 1 out of 30 drops was 50%. 5 out of 30 drops was 20-30%, and maybe 24 out of 30 drops was in the 10-20% range somewhere. So a 30% drop should be bought hard, a 50% drop should be bought very hard. I can think of no simpler way to ration it.

    It is insane to say that Comex’s manipulation at $50 to cap it temporarily resembles anything like an organic move by the market.

    1) Adjust for inflation. The 1980 high in silver was anywhere from $130 to $400 per ounce when you do that very necessary adjustment. I don’t talk about going out and buying brand new $2000 cars, or paying 90 cents for a gallon of gas, so you shouldn’t talk about $50 being a top in silver.

    2) 1980 did not see the kind of shortage in silver that we see now. The unserviceable debt overhang we now have also does not resemble anything like 1980. Throw in a dose of global distrust of fiat, and you have a recipe for the re-monetization of silver and gold. At least in parts of the civilized world.

    3) The behavior of the market after the margin increases explains one huge factor to me. The composition of the silver market that took prices that high and then that low, has largely been PAPER driven. Leverage doesn’t knock the physical market off its high, and a 30% drop on margin increases tells me that STILL almost noone owns the physical. Did I cough up my position during the 30% drop? NO. I bought a little more in the low $40’s and I coughed up enough money to nearly triple my position when spot hit the low $30’s. Now I’m still accumulating weekly, and plan to increase my holdings with a tranch that will DOUBLE my current position IFF (if and only if) the market drops silver to the mid $20’s (say $25 to $28). Then I’ll be nearly done buying silver if that happens, and I go back to weekly accumulation after that – despite where silver is headed.

    ALWAYS have money set aside to buy more silver in case it drops – but do not stop buying it – keep accumulating it at all prices under $100.

    Do I see a technical pattern suggesting a Wave C taking us down “somewhere” below $30? Yes I do, so then I buy even more silver with what money I have left – even buying some on credit. I ALSO see fundamental reasons why silver should already be above $50 right now (some of the physical market still is, despite the paper). The lovely thing is, the physical market remains high (eBay) while the paper market requires coin shops to sell to me in the mid $30’s (and possibly later in the mid $20’s), DESPITE how much I am able to sell it for in the physical market. This divergence is the alarm that should be making it obvious that something’s rotten in Denmark.

    Dollar cost averaging and accumulating silver at ALL prices under $100 is the way to go. Keep stacking people – and only pay attention to DROPS in price so you know when to buy even more than normal.

  • CHM

    I have a question. Why is JP Morgan selling silver short?

  • Matt

    I agree the charts look similar but a different phenom is driving up the price of Ag into the 30-50 zone. It has to do with perfectly valid concerns over the loss of value in the USD. Back in the 80s that was not a concern. All that was happening there was an effort by a couple of business types to corner a market. (They should have read the Clayton and Taylor Anti-Trust Acts before trying this.)

    It is true that the COMEX market is subject to a great deal of manipulation by gov’t and other interests. However the demand for actual delivered physical Ag continues to rise. There is the Comex price, then there is the *actual* price for the *actual* PM. For silver bugs, it’s the second one that is important since they own the physical metal (buried in their basements or someplace else) while Comex traders don’t.

  • http://Stanford Martin

    I think that you somehow forgot about Paul Volcker and 18 % interest rates. Also $50 in 1980 does not equate to 50 chump change dollars of today– I would think $150 probably doesn’t get it either. Comex will run out of silver in 6 months as delivery is the norm now a days.

  • Stanley

    I disagree with this prediction that in June there will be a new low. The Russians and Chinese and Indians (India) have been and are still buying all the way down. The Comex has announced that they only have 70 million oz.’s. That’s not even a fraction of what manufacturing needs for industry and electronics that use silver. So the fundamentals of NEED, and supply and demand are quite different now then in 1980. Also, QE3

  • Stanley

    I disagree with this prediction that in June there will be a new low. The Russians and Chinese and Indians (India) have been and are still buying all the way down. The Comex has announced that they only have 70 million oz.’s. That’s not even a fraction of what manufacturing needs for industry and electronics that use silver. So the fundamentals of NEED, and supply and demand are quite different now then in 1980. Also, QE3 (SORRY con’t). Ben Bernanke will probably start QE3 at the end of June when the current QE2 expires albeit it he will call it a different name. And that will only put MORE pressure on the Silver metal an INFLATION Hedge and a Hedge against FIAT MONEY. I agree with David Binkowski’s assessment. I think this article is WAY-OFF, and only address the artificial Hunt Brothers historical fact of trying to corner the market and drive it up. The Chinese/Russian/India economies are running at full steam and need silver for manufacturing. Further BRICS (Brazil, Russian, India, China, South Africa) all agreed recently to not use the dollar as a reserve currency. What will they use then? Gold! and Silver! or a combination of BOTH Gold and Silver!

  • JJM

    Started silver purchases late 2010 after real consideration of what my savings would be worth if/when we repeat Weimer Germany and what could be used to make everyday purchases. Latest purchases have been influenced by my dislike of JP Morgan and hoping I would help them lose more in the ‘shorts’. I suspect that the correction from high $40s to mid $30s only minimized their losses? Or somehow, are they still winning?

  • Iafarmer

    This article is as far off-base as any I have read recently. I have studied this market for many, many years now. PLEASE sell your silver now, as I will be on the buy, with both hands. I don’t claim to be the smart money, but I have a reputation for finding what the STUPID money is doing and getting on the other end of that trade. I have already made a large pile of money in the silver market. I started buying at $4.36 and have seen that go X 12. I’ll see the silver I buy this week go quadruple at the very, very least. Sell out of PM’s now and find yourself in the breadline. Fair warning.

  • Brutus

    It’s fallacious to assume that because something happened in a certain pattern in 1980 it would happen that way over 30 years later. Maybe if you had a dozen examples, but you seem to have just one.

    Everyone has a theory! (they know that they only have to be right 50% of the time, so that if 10,000 people read this they’ve “impressed” 5,000 people with their wisdom. Then they write another column, and they “impress” 2500 of those 5,000, then 1250 of those 2500. Those 1250 then sign up for a monthly subscription or something for $100/mo and they have a nice income for themselves. This is pretty standard in the financial guru biz.

  • Sur Vivor

    The validity of the comment lies in the price action of a parabolic run-up. If you look at the 10-year chart of silver, you will see a lot of other parabolic run-ups which correct dramatically. What can’t be compared is what silver did following the crash in 1980. That is where the economy and the fundamentals of silver come in. However, if we have a deflationary depression, silver may stay low because most of its demand comes from manufacturers and not from people trying to preserve their money. Things could definitely be different if it is hyperinflationary depression.

  • Sur Vivor

    I meant to say above, that the other “parabolas” were at much lower price points, but still they were strong spikes to the up-side which then corrected.

  • http://J.mp/EatFood Av8Rr

    I’m with @Federalist45 and @Magnacarta….

    When the USD collapses (and it will), those of us holding AG at ANY price will have something of value with which to live. THAT’S what I call an investment…

  • Brian

    “No demand and no real long term inflation”?

    Two part question for you. Do you live in a bubble or just on another planet? The comex isn’t about to run out of silver because there is “no demand”, and there were not silver/gold ETFs in 1980 buying up all the bullion. So what planet do you live on where there is no demand?
    An oz of gold in 1955 would buy 153 gallons of gas. Today an oz of gold buys 375 gallons of gas. There is no inflation when pricing in silver and gold, but when pricing in dollars, you would have to be a blind, idiotic, fool to say there is no inflation. But, hey, if the shoe fits………..

  • Robert Card

    Hair on! So true.
    The two periods are really not comparable.
    I will keep buying because nothing else will protect your savings like PMs.
    I have often said, you will not ‘make’ money on PMs, but you will protect your purchasing power and that will put you ahead of 80% of the population.

  • Jackal

    Pity poor Tom McClellan he writes an article thinking he his smarter than every one else. Nobody agrees with him because it turns out he is not very smart. Hi ho silver.

  • George M

    The dollar is no where near as strong as it was in the 80’s and I do not see the correlation. Silver will not see the extreme dip due to the fact that the dollar is going south faster than silver can.

  • al christie

    I guess you could make any two charts look similar if you fiddle with the time line.
    Also, gold is still almost twice as high as its 1980 peak. Gold and silver have historically moved closely in tandem (although silver is more volatile), so you would expect silver to get close to $100/oz to catch up with gold.
    In 1980 dollars, silver should be over $2000/oz to compare with the 1980 rally.
    In 1980, Ron Reagan was elected, and he reversed Carter’s policies. The situation is very different today. That may have had a lot to do with pricking the commodity bubble.

  • oil trader

    OK I can’t claim to have done research on this. However to say that at some point in 1980 only selling was allowed doesn’t make logical sense. Who did the sellers sell to? Buyers. You can’t sell into thin air. Perhaps the open interest declined. A rapid increase in the proportion of sellers to buyers will bring down the price. Each new lower selling price has to have a buyer at that price. If that buyer is a new buyer he/she will obviously lose money with even lower prices but someone exiting a short position from the top will profit by buying. I know this is obvious but in the context of this article it merits spelling out.

  • Robert Gillies

    I agree with many of the posters that today is very different than 1980. Mainly because of the national debt and concern about the weakening dollar the price of gold and silver has soared. The only problem is that when too many people jump on the bandwagon prices go too high. This almost always happens because that is human nature. So if you have money to invest you need to look for opportunities that haven’t caught everybody’s attention. I certainly wouldn’t buy gold or silver at today’s prices. Real Estate is certainly depressed and there are probably some good opportunities if you are very selective about what you buy. Just my two cents.

  • mtomasic

    At the birth of my grandson two and a half years ago, I returned to investing in coins, primarily silver coins. I had lost over $100,000 in the stock market diligently following all the market advisors and listening to every television, business commentator. I had cleared of the market concerned over the housing market, only to be sweet-talked back into it by the likes of Bernanke. Never again.

    My return on collectible coins for the past two years far exceeds anything the stock market has done in its recovery. I believe there will be more and more grandfathers following the same path, so it is difficult to imagine that the silver market today will mirror the Bass Brothers attempts to corner the market. Now if someone would just put a lid on the shorts, making them cover their sales, perhaps a real value will arrive for precious metals rather than paper promises like the junk paper sold in the mortgage market before and during the last market collapse. Mick

  • jimcochr

    I do data and the comparison of these charts have only one fundamental for that basis. The parabolic run-up was stopped by market control and manipulation, because some powerful forces didn’t want it to run up. Silver demand is still there but everyone is waiting for a significant move up to help them believe we have bottomed. So what purpose does such bogus chart analysis serve? To drive it down to unload shorts and to buy like madmen and when that happens it will take off like a rocket – just saying.

  • Bill Gould

    The 80 silver high was a deliberate attempt to corner the silver market.

    How does that compare with today’s market?
    You may be using statistics to further your article, which I think isn’t credible.

  • scott

    I find the chart very interesting as it is similar enough despite bending time. I here tell that Wall Street wants $28 silver which would put in line with the chart as retracing to where it began to go verticle. As much as I hate to say it, Wall Street usually get what it wants and with the crooks at the CME and their buddy board members at JP Morgan, they will stop short of well… nothing to get what they want. And with our friends at the CFTC with their pin heads in the sand, whose to stop them.

  • Tim

    Protectors of the ‘Federal Reserve Note’ can place the value of silver where ever they want, to extend the fiat money control. They can look at the chart from 1980 and follow the same pattern, laughing amoung themselves.
    Analyse this,
    silver will explode, crushing the global financial system like a catagory 5 hurricane destroys all in its path. They know it and are just buying as much time as they can before the storm. That’s nothing new for them, they’ve been doing it for years. This is the end game now, throw your charts out the window and watch them scatter in the wind.

  • bigpossum

    Only liquidation was allowed. Buyers liquidate too.

  • T.C.

    Did you forget about the deficit that was then in 1980 to the deficit now in 2011? Back then our deficit was less than $100 billion today we’re fixin to cross over to $15 trillion. Numbers always lead you down the path of reason. The numbers are staggering. A financially broke system equals a broken economical sysem. Silver looks good now and will shine multiple times brighter in 6 to 9 months.

  • Anonymous

    thats stupid

  • herrobp

    It may not be off the mark, in the short (very short) term. I think it’s coincidence that the two graphs coincide, but it doesn’t matter. There’s no demand for QE3, so Chairman Maonanki may announce a temporary halt to the printing presses the end of this month (while of course running them at full tilt). It’s not inconceivable that a few Keynesian suckers could sell off their holdings, producing a very temporary collapse in the silver market at right about the same time that graph suggests it should happen. If you’re a risk taker and have enough silver that getting it wrong wouldn’t kill you if you had to buy it all back at higher prices, then it might not be a bad idea to sell some now, and pick it back up should it drop a little.

  • Edward

    i was going to say pretty much the same thing, but i will add that we are about to hit hyper-inflation in the next few years as the dollar continues to collapse and the Fed continues the ponzi scheme of printing debt to buy debt and charging the US government interest to use its own money. This is insane and unsustainable and will eventually lead to the total collapse of the dollar; removal of the dollar as the worlds reserve currency(plans already being discussed to do this); default on our debt; and a new currency. so yeah, keep lying to people dumb enough to believe you that there is “no long term inflation” someone will believe you and get scared and dump all there silver and hold a worthless fiat currency and have their wealth stolen from them by people such as yourself. by the way, our money supply was doubled as a result of the bailouts, that should have been instant 50% inflation, but it is taking a while for prices to catch up because of all the manipulation of the markets by the Fed and others powerful enough to manipulate. the ONLY reason silver hasn’t hit $100 per ounce yet is the massive short positions by companies like JP Morgan and others manipulating the silver market. so either stop lying to people or take your head out your ass sir!