SILVER PRICES DISPLAY SOME BUBBLY CHARACTERISTICS

What if someone had come to you at Nasdaq 3900 in late 1999 and told you that the Nasdaq was going to decline 80% over the next few years?  Would you have gotten out after such a great run or would you have continued pouring money into an environment that surely felt “different this time”?  What if I told you your upside was capped at 30% and your potential downside was 80% over the course of the next 36 months?  Would you take that bet?   This might be the exact situation we are looking at with the price of silver today.

If you study the Nasdaq bust and the prior 6 year rally in silver prices you will see some remarkable similarities.  After settling at around $7.50 in 2005 silver prices went on a 420% tear to their current price over $39.  In 1994 the Nasdaq Composite settled around 750 before prices went on a 6 year 520% tear to their all-time high of 5132.  The 3900 level in late 1999 was the equivalent of today’s $39 price in silver.  It was a full 30% shy of the top, however, a seller at that level in 1999 avoided a 72% decline in the coming years.

Now, I know history never repeats perfectly, but it does have an odd way of rhyming.  The 6 year action in silver and the Nasdaq are eerily similar.  It’s impossible to say whether silver is currently in a bubble because there are so many catalysts driving prices higher, however, the price action is remarkably similar to past bubbles.   But is silver really in a bubble?   Let’s review some characteristics of bubbles.

First, a “bubble” occurs when market forces combine to generate a highly unstable position. This results in the system entering an extreme disequilibrium and ultimately failure. Characteristics of bubbles:

  • Strong fundamental underpinnings. Bubbles do not merely appear out of nowhere.  Bubbles grow over a period of time based on strong fundamental underpinnings.  There is always a very good economic reasoning behind bubbles.  This feeds into the rationalization of its existence and justifies a “it’s different this time” mentality that later occurs.
  • Ponzi builds. A naturally occurring ponzi process begins.    As a recency bias builds (the tendency to overweight recent events and ignore historical facts) the system begins to exhibit herding behavior as more and more investors get in on “the only game in town”.   This becomes amplified by the media, those with a vested interest in this particular market, those who “throw in the towel” after wrongly betting against the trend, etc.
  • Illusion of stability within disequilibrium. The illusion of control increases as investors become increasingly confident in the market.  They increase their bets, increase price targets, etc.  Investors begin to convince themselves that it is “different this time”.  All of this is occurring as the system grows increasingly unstable.  I like to think of it like a spinning top.  When you initially throw a top into a tight spin there is a distinct order in its movements.  They are predictable and stable.  But as the top loses momentum it begins to spin uncontrollably.  The system becomes unstable, unpredictable and ultimately breaks down.  Bubbles work within the same sort of illusion.  What appears like a stable and self sustaining system is in fact increasingly unstable and entering an inevitable disequilibrium that breaks down.
  • Systemic collapse. All bubbles collapse.  It is never “different this time”.  As this prior herding effect begins to breakdown there is a flood for the exits as the herd reverses its controlled march into a panicked stampede.   The gig is up.  Collapse ensues.

Is silver in a bubble?  No one can be certain, but this market is surely displaying some bubbly characteristics.   Given the history of bubbles (such as the Nasdaq) and the various characteristics of bubbles we can see that silver would certainly qualify as being a “high risk” bubble market.  This does not necessarily mean it is on the verge of collapse (as we saw with the Nasdaq the bubble grew further before collapsing), however, I would characterize the silver market as being in a highly unpredictable and unstable state given its current market characteristics.

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Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • FixedIncomeGuy

    Hope you brought your boxing gloves Cullen because there are a lot of people who are not going to like this article.

  • LVG

    Does this mean you’re not bullish about gold anymore?

  • Patrick

    ETF’s are the wannabe Hunt brothers! Now there was a bubble–$5 to $50 in a 1 1/2 years.

  • Hans

    In the past year from $18 to $40 poz, with only a 20% correction!

    Any new positions must have a 5% stop loss…

    Hi Ho Silver or For Who The Silver Bell Tolls….

  • carnahan

    I’m agnostic on this, but I do remember the last precious metal bubble and the chatter on TV (no internet then) was non-stop. Gold prices were quoted right along side the Dow. I don’t get that same feeling of euphoria and panic about missing the move that I observed then.

  • http://kiddynamitesworld.com Kid Dynamite

    to determine if silver is in a bubble, we need to figure out who/what is driving prices. that’s not easy to do though. What I mean is this:

    I don’t think I’ve ever seen a market segment with as much gross ignorance as there is currently in silver. There are multiple silver blogs which get more than 100,000 hits per week, where the authors and commenters have, literally, a Yahoo Finance level understanding of the market. It’s terrifying to read the articles and the comments – i mean – GROSS ignorance.

    So, are these the people driving silver higher? Who knows – perhaps not – perhaps they’re the vocal minority and add up to an odd lot. As a silver long, I hope they’re not the ones driving prices, because if they are, silver has a very major problem in its future.

  • First

    Several commodities are “not” in such high industrial demand in the US but they still are in other part of the developing economies such as China, India and Latin America with GDP growth of 9.0%, 8.7% and 4.1%. That is where 70% of this growth and demand comes from. Its very difficult to pass on those cost to consumers in the US when demand for new constructions is still low.

    54% of the annual global silver supply is used for industrial purposes. Current global silver inventories are around 600 million ounces still not very high compare to when inventories stood at about 2.3 billion ounces in 1980. If however China’s Housing bubble collapses its game over and fast. But is silver any different than most other commodities ? http://www.edrsilver.com/i/pdf/SilverFundamentals2008.pdf

  • B Ferro

    I think virtually every asset that can be quoted is in a bubble. Silver is one of many. All premised on some unsustainable vision of the future extrapolated from current events. In the case equities, the extrapolation of solid demand trends today, driven by unsustainable global stimulus. In the case of precious metals (and all commodities), the extraplation of endless run-away sovereign debt accumulation and default. Bonds pretty much the same – 20 years of low inflation extrapolated into the future given the Bernank’s promise that he’ll continue inflation when he sets it ablaze “within 15 minutes”….

    Never been a worse time to invest if your eye is set toward longer-term returns in anything…

  • steve

    Cute analysis, but silver still remains 20% below its all-time high. The rise thus far has been fairly steady and orderly, no pre-parabolic type moves that suggest unbridled speculation. Moves like silver has had don’t end until after the previous high is taken out. Whether that occurs this year, 2012, or the next, I don’t know, but I think it’ll happen. Then we can start the bubble talk.

    Obviously, the Fed could end this all tomorrow by jacking rates 50 bp w/promise of more to come, but we all know that’s not happening, so party on.

  • eludog

    Somebody has this dead right! B Farro, I love reading your current optimism on this blog and agree completely. Maybe you have posted before that you are a long term bear on asset prices but I have not seen it.

    Of course silver is either in a bubble or at the very beginning of one. It is impossible to know how long it goes. Commodities will go up at the very least until June, and maybe further depending on the Fed. But looking out over the long run, we have just been through the first stage of a credit bubble in the developed world. Now comes the credit bubble in the EM world. This will stop when asset prices become too high for people to afford to live. I’d say we are not that far away from that point.

  • mojo

    CR,

    Would it be just to see the price of silver (or any other commodity) in isolation and conclude that it is bubble?

    Why should we ignore the fact that USD monetary base has exploded by nearly 5 times since 1999? Should we turn a blind eye to the fact that fed is printing billions as we speak?

    I believe that PMs are going high because there are people who realize the fact that this incessant money printing is diluting their dollar holdings. What better way to preserve wealth than own a few ounces of gold or silver?

    Now can this bubble crash – sure it can – as you have pointed out that every bubble ultimately crashes. But what would it take?

    As a separate note, I would be interested in finding out how much of recent jump in gold and silver prices have come because of purchases made by foreign central banks.

  • Devir

    look for the dollar to bottom out next week and kiss goodbye to the commodities rally

  • OTS

    Steve,

    How can you say that a rise from $27/ounce to $39/ounce since February isn’t parabolic? Eventually silver will reach a price where producers are going to want to hedge forward production. When that happens a top is near.

  • First

    Greenspan and BB have managed again to avoid and divert inflation in to a new and ever lasting “Bubble Universe”. This miracle consist of lifting all markets and creating wealth for all.

    When it all collapses again BB will write a book like Greenspan did rationalizing his actions and suggesting new regulations.

  • B Ferro

    I am a long-term bear on pretty much everything eludog…the biggest challenge is ignoring that sentiment and trying to be as bullish as possible in the n-t.

    But in the end, I’m not sure how you can be anything but bearish on everything – we are really in unchartered territory here. Back in the early 30s there was a fork in the road, we chose the one with the street sign labeled “Depression”. In late 08 and early 09 we came to the same fork and chose “Reinflate”. Because we’ve never been here before, but all inherently know this path is unsustainable and probably frought with terrible long-term consequences, it de-facto argues for an incremental future risk premium to be built into every asset price given those great unknowns. And as far as I know, incremental risk premium = lower prices…

  • mojo

    That can be a dangerous assumption – Dollar can rise because of “non-fundamental” reasons too. In that case commodities can rise along with the dollar rally.

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

    Cute? I suppose that’s your obnoxious way of being condescending, right? The analysis is unbiased and objective. If you want to allow your personal biases to interject and spew hatred in my direction then be my guest. You help prove my point. You’re exhibit A in the psychological irrationality that occurs during a bubble.

    As for the blow-off phase….well, the Nasdaq doubled in the 12 months before the bubble blew. The Hang Seng doubled in the 12 months before it blew. Oil doubled in the 12 months before it blew. Silver….has just doubled in the preceding 12 months….

    I am not trying to call a top here. I am merely stating what should be obvious to most investors – the risk in the silver market is astronomical right now. But if you’re not into the risk management game then do whatever you want. I am not giving investment advice. I am not predicting anything. I am merely stating facts. I don’t predict collapses. I just steer clear of markets where there is potential for it.

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

    There are always fundamental reasons for bubbles. But ultimately, it’s the imbalance that overrides the fundamental story. CHina didn’t stop growing in 2007. The internet didn’t stop being incredible in 2000. But there was an imbalance. Is there a huge imbalance in silver. I do not know. Let me be clear about that. I am not predicting collapse. I can’t predict collapse. I wouldn’t sit here and talk about biases while at the same time believing that I am somehow unique enough to predict the future! Talk about a bias! That would be it….It would discredit my work entirely.

    I am merely stating that there appears to be an imbalance in my opinion and that means there is a very high level of risk associated with owning this asset class.

    That’s all.

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

    Good Article, Cullen.
    I am long silver and have been trading in on pull backs, then selling on abrupt rises. It has been a damned good trade for close to a year. I am long silver, but I am not long this market or really any market. Until we get a massive deleveraging and resolve the fantasy accounting for the entire economic market, price discovery and risk are proving impossible to quantify. Having said that, there are a number of drivers working to propel gold and silver higher. A lot of investors have yet to fully recover from the dot.com bust, followed by the housing collapse which is still ongoing. There is a bubble chasing mentality out there in my opinion.

    I believe silver and gold will climb higher and higher as the media and blogs feed on themselves, each other, and investors. I don’t see a bubble in the precious metals yet, and am comfortable working this trade as long as JPMorgan and HSBC along with a few others continue to chase the worst short trade in the history of investing. With some 140 days to cover their shorts, the benefits of a short squeeze are just, pardon the pun, too damned juicy to ignore. Plus I like the idea that ‘we’ can give JPMorgan a punch in the face by working in concert. The big boys don’t get held accountable too often anymore.

    I also share the theory, espoused by more than a few silver blogs, that physical silver is in short supply. It took Eric Sprott over two months to get the physical metal to start his ETF. Lots of paper, not much metal. Sovereign demand is high, and many view silver as a hedge against the dollar’s devaluation.

    I like this trade a lot. But, your article brings up some very good points about why you MUST be agile.

    I do expect a pullback and a hard one at that, when QE3 is denounced and derided by the fed come Jun (Or maybe Apr 27 using FedSpeak). However, I see harsh declines for markets regardless of the verbage. I think they just want to see what happens when they withdraw stimulus and when they do, Silver and Gold will fall hard. However, they have no choice but to continue printing, so my strategy is to have a fully loaded cash position to take advantage of this temporary hit to load up on miners and bullion. Don’t be emotional, keep your greed in check, and treat Silver like any other trade.

  • eludog

    Agreed. I make every attempt to try to be positive looking over the long run but just cannot come up with with a positive outcome. Believe me I have tried.

    But as you mentioned, that does not mean assets cannot go up over the short run. In this type of environment, the only sane way I see investing is with some type of use of options. I actually bought some out of the money SLV leaps about 8 months ago just to get some type of exposure in case of this sype of environment. I had no clue it would turn into a bubble as it has become.

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

    I still like the gold/UST’s trade.

  • Devir

    whole commmodity spectrum is way overbought and displaying severe neagative thecnical divergences and all sheeple piled into the risk trade with fresh earthquake printed yens… at this juncture a hefty rise in dollar will hit the comms hard — a minimum correction of %30.

  • Alchemist

    I agree with your analysis. QE3 is definitely the catalyst. If the market becomes convinced that the end of June is actually the end of QE, then it is game over (temporarily) for the PMs. But, even if QE2 is ended in June, I expect some type of “stimulus” before Thanksgiving; consequently, more room for the PMs to continue their run.

  • Johnny

    monetary base does not equal money supply. excess reserves have exploded as well. “inflation is not always and everywhere a monetary base phenomenon”

  • First

    With out QE3 primary dealers will not be able to flip new Government to the Fed like there is no tomorrow. Would this not push rate upwards ?

  • scrilla_gorilla

    I agree that the recent run-up in silver looks bubbly… but I completely disagree with your statement, “The 6 year action in silver and the Nasdaq are eerily similar.” They don’t really look similar at all, except for the fact that they’ve both gone up a lot.

  • TNO

    I have been long silver for ten years now and I have to admit it makes me a little nervous to see it run up so quickly. Maybe I’m blind and talking my book but other than a similar chart, I don’t see the correlation to pets.com and all of America and Wall St. behind the great dot.com bubble. And I agree that QE3 is a catylst for silver…and everything other investment class that is so overdone right now. Some days I come in and just want to sell everything and go long the dollar, and by afternoon I want to buy 2-3 more miners. Making money is not easy especially when there is so much interference in every market, keeping it seems to be even harder.

  • William Goe

    Hey First,
    Jim Rickards has an answer to that:
    http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2011/3/27_Jim_Rickards.html
    Click on:
    Listen to MP3

  • DanH

    I wouldn’t call it a bubble necessarily, but I agree with your assessment that it has become incredibly risky to own silver.

  • TNO

    I can’t say you are wrong, but to me the beauty of gold/silver is that anyone can understand it. But I don’t disagree that you really need to be careful who you listen to in ANY market. I have seen some of what you refer to.

  • boatman

    no way a bubble yet….look at the chart,no parabolic rise.

    give it 3 years—100$

  • Shant

    Excellent analysis William Goe. Let’s also not forget Andrew Maguire’s testimony to the CFTC that actually got this ball rolling. I agree with you that the cabal will make some noises about raising interest rates and dismissing the need for QE3, etc. to talk down the precious metals markets. If things are left unchecked, we could see a massive exodus from fiat to PMs, which in turn, could lead to a run on the fragile banking system. So I’m confident that they will try to talk this down (e.g., Kocherkolata’s ramblings about raising interest rates 75 bps, etc.).

    But given the fact that the Fed accounts for 60% of the Treasury’s funding needs, they really cannot shut down the ponzi – they will just call it something else. QE is suddenly a bad word. It will be so complexly structured that even some of the trained economists won’t be able to spot the blatant money printing. For e.g., how many folks realize that the USD Currency swaps that the Fed performed with foreign Central Banks during the height of the Financial crisis amounted to nothing but money printing? Even Congress didn’t catch it (and the fact that such swaps are unconstitutional and the Fed does not have the mandate to do so).

    At the end of the day, I don’t care if they initiate QE3 or not. The rise in the precious metals over the past 2 years may have less to do with the various rounds of QEs launched since 2008 and more to do with the fact that the Fed may have printed as much as $20T during the financial crisis to save the shadow banking system from utter devastation. Since it deployed exotic terms like PDCF, TSLF, etc. to save the banking system (thereby taking on its balance sheet toxic assets), the average American never grasped the magnitude of the printing of money.

    It is only now (first in a cache of Fed documents released to Congress in 2010 and more recently, Fed documents released in response to the suit filed by Bloomberg) that the world has begun to appreciate the amount of sheer money printing that transpired during those tumultuous times. Some may even argue that printing this much money makes your currency worthless. And therefore the unabated rush into tangible assets. Which begs the question – is the USD in a massive bubble??

  • Krut

    As long as the RSI for silver remains above 50 I’m not worried http://stockcharts.com/h-sc/ui?s=$spx&p=D&b=5&g=0&id=0

  • Gerald P

    Ferro, I have to agree with you.

  • Arsene Holmes

    I have been long silver since 2009. I still think it’s going higher, but I am getting scared.

    I go to a Japanese restaurant every week whose owner is European. Two weeks ago he told me that he is now “investing/trading silver” in his spare time ( which as a restaurateur he hasn’t got much of, but still) and that his friend who is a chiropractor has sold his house and want to trade silver full time i.e not practising any more

    I know for a fact that there a very very big player out there who is trying to do a Hunt with unlimited means.

    I know that Silver is still very far from its all time high when adjusted for inflation i.e 17.84 ( Bloomberg)

    But I have the feeling the ride is going to be extremely bumpy. Someone mentioned 5% stop losses. In the last two months we’ve had 5% drops in an hour

    Caveat Emptor

  • boatman

    after a good nights sleep i agree w/u on bubbly actually (equities now past bubbly)…..its like the very begining of the nasdaq or housing or tech or tulip or equities-in-the-last nine-months run.

    financially speaking silver is 1/2 gold and 1/2 copper

    up pressure as safe haven and up pressure as a manufacturing commodity have combined to make a very good run lately.

    when qe2 ends temporarily(safe haven falls) or china pops (or take your pick)….commodity value will fall

    then as more qe is added safe haven side will take over.

    typical end game ratio is 16:1 so when gold is 3200(conservative) silver is 200.

    the fact that ben does not know what cullen does (and would be politically and socially(yes socially being in the beltway and part of that club) unable to twirl MMT knobs for our economic benefit if he did know) ensures this.

  • paydreaux

    buy silver, kill JPM

  • David

    Cullen, I was reading this article on Business Insider and I have to ask why you let them post your articles? The comment section there is terrible.

  • But What Do I Know?

    I agree with you on the silver, but to be honest, the option premiums for protection don’t seem that high to me. To my way of looking at it, if I can insure my downside, I can stay long, no matter how scared it makes me. . .

  • eatmilos

    Bubble or not, silver is in a strong uptrend. Only a fool would attempt to short it now.

    Disclaimer: Long silver since DEC/2010.

  • alex p

    Good article. There are some smart money managers who are long precious metals and have been for a long time who recently started a pair trade of long gold/short silver. Personally, I am long both and have been for four years but realize there are times when things get frothy. We are nearing an intermediate top in both metals in my opinion. Other analysts I subscribe to and read feel similarly. I am and will be paring back over the next month or so.

    Where I disagree is the notion that silver is in a bubble similar to the Nasdaq back in 2000. Silver may hit $52 (assuming a 100% correlation to the NASDAQ) and correct downwards as it has many times over the past 10 years. Let’s say back to the high 20’s or low 30’s as an example.

    However, so long as 1) real rates are negative all over the world and I might add totally fudge inflation statistics; 2)governments keep deficit spending; 3) the Chinese and other countries misallocate capital and 4)central banks keep mouse clicking money, investors who are not positioned in precious metals for the long haul are makig a grave error.

    Whether all this ends in serious deflation or hyperinflation depending on your country, you must protect yourself in the best way you are able. This isn’t NASDAQ, or the housing boom or some other analogy like those. It is far more serious. Of the above comments I think I feel most similar to Mr. Goe.

  • psherid

    Long term risk to owning silver is that we figure out another way to solve our debt problem besides inflating it away.
    Anybody seriously think that’s going to happen?
    Jim Rogers is long term bullish- dangerous to fade him, he’s made me a small fortune over the years.

  • http://minyanville.com Keith Jurow

    Kid Dynamite,

    Although I write mainly about the housing market, I have written about the precious metals and follow them closely now. I read your comments on SEEKING ALPHA about the ignorance about ETFs and they are some of the best I’ve seen. I agree that the ignorance about the precious metals is mind-boggling.

    Most people are so enthralled with the ETF trading that they know little about either the fundamentals or the history of precious metals. If they did, they’d certainly understand that gold and silver are not commodities like pork bellies or cotton. Gold was money until FDR confiscated the gold coins of all Americans.

    I’ve seen some good evidence that shortages of silver for delivery may be developing because investor demand is so strong. How many people know that the US Mint sold 30 million ounces of silver coins last year and ran out of them?

    Anybody out there have any idea how long it takes to turn a gold or silver find into actual production? I follow a gold mining company very closely and gold finds from last year won’t be pulled out of the ground until 2013. Can’t print the stuff like dollar bills.

  • jt26

    Annual silver and gold production is tiny compared to annual global deficits + asia & OPEC trade imbalances. And since there seems to be a lack of investment alternatives (slowing pharma profitability; slowing IT ROI; restrictions on foreign investment) then asset hoarding seems to be the only way left.

    There also doesn’t seem to be an indicator on when gold/silver is bubblicious. When Toyko’s Imperial Palace (real etsate) was worth more than all of California … When half of Internet IPOs had price/rev in 1000s … it seems obvious. How do we know when gold/silver is ridiculously valued?

  • John C

    Whether silver is a bubble or not no-one really knows. I myself am a little skeptical of the silver is in a bubble theory at least not yet. But when you have something that goes up over 100% in less then seven months and you don’t at least take something off the table then when would you?

  • First

    Look back at hold post in 2007-8 or You Tube media comments on the Pre-Housing Bubble burst and you get the same same arguments.

    After a 800% increase since 2000 and a 100% spike increase in less then seven months if so few know if Silver in bubble mode that may be the answer.
    They will be the same that will say I did not see it coming.

    There where very few that recommended silver at the low and there will be even less that will suggest to sell at the high.
    I expect ridiculous price projections soon that should be the final spark.

  • Willy2

    Silver is most definitely BUBBLE. But I don’t look at silver only. I look at the silver/gold ratio and that ratio is back to its 2006 bubble level.

  • Jon

    Your kidding. Your premise shows you know nothing about what you talk about. The gold to silver ratio is 37.
    I can find two charts to- so what! The time for silver has never been in line as it is today. If you followed silver history, manipulation by banks, Gov. You would know this. It’s more than demand/ supply, more than QE, it’s more than manipulation. People are waking up to the Ponzi scheme of the present world monetary disaster unfolding before us.
    This is the perfect storm…….silver is the place to be.

  • Peter

    Dear Cullen, the dollar is the real and biggest bubble of all time. When is this finally dawning on you?

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

    I’d be very interested in some evidence of this….

  • Dustin

    if silver were in a bubble, which means it will pop to its death, i doubt its the case …. silver has been held down by J.P Morgan till sept of last year with their grip on the paper contracts..so it had alot of potential energy if you will released…also a bubble involves a herd of investors running into it for a certain amt of time..only 1 percent of investment monies are in gold and silver right now..not saying a correction isnt possible but better to buy now for long term(a few years)because silver is quite likely to go into the hundreds of dollars per ounce per increased investment demand and according to a recent report(sorry dont recall by who at the moment) its use for green energy and medicine will also be substantial…oh yeah and above ground supply is quite low…also its controversial at best to say that all the paper silver contracts actually have any where close to what they claim to have stored(more paper aristocratic bullshit)..all the top experts from richard russel to casey to james turk agree its future is bright for some time….besides, how many people do you know have gold or silver like their neighbor…the mints are overwhelmed with demand, china has turned from exporting 100 million to importing 100 million in the past few years(and growing)…this too good to be true economic recovery might involve some interest rate hiking-bringing down gold and silver at first(might not) but after that short time frame, reality will set in and lies will once again fail to stop gold and silvers role mirroring those lies..

  • http://321gold.com Gringo Viejo

    Utter nonsense. The metals’ value has been artificialy suppressed for almost 30 years. What’s happening is true price discovery….nothing more….nothing less.
    Mr Roche, I’d like to buy you for what you know and sell you for what you think you know.

  • Agbug

    Next year when silver is over $200.00 people will still be saying silver is in a bubble. Common sense will tell you that in the next 20 -30 years or so silver and gold will be close to the same price. Why? because we consume silver, it is going to be priced for its rarity. Look at what we consumed in the last 60 years, what will we consume in the next 30 years?

  • http://www.logoweardirect.biz/rsmith65 Russ Smith, Caliornia

    Hi!, Fellow Inflation Hedgers/Fighters:

    What you want to know without a crystal ball will be gradually evolving from the actions of OUR Fed Chairman Helicopter Ben who may temporarily stop his Quantitative Easing this June but QE’s ultimately will reassert which means more inflation. Why should either gold, silver, platinum, palladium or copper etc. stop acting as inflation hedges until Helicopter Ben permaently stops his QE’s but not even the Helicpter man knows that day nor the hour?
    Furthermor, what should happen to the relative price levels of all comodities worldwide; should worldtrade refuse to recognise the US $ as its’ reserve currency of choice throughout major daily international transactions? The times they are a changin and they can change both me & thee!! Also change the price of all the world’s inflation hedges encluding the internatioal price for silver!

    Russ Smith, California
    resmith@wcisp.com

  • SGGroup

    The Silver price is a function of government irresponsibility. If you would believe that the U.S. government and other developed nations are on the cusp of controlling deficits, then it would be the time to sell.

    Silver is the most volatile of all commodities. At some point, investment demand may slacken temporarily. Then there would be a sharp sell-off, but until the deficit monster recedes, it would be a correction in a bull market that appears to have a long ways to go yet.

  • Jason Emery

    Cullen-“I’m not calling a top…..”

    Yes you are. But that’s o.k.

    It’s funny. I saw your article at 321gold.com. Every single solitary article (on silver)I’ve read there in the last 6 months has been just like yours. They all say that silver is going to collapse. But they leave themselves a little wiggle room to the upside, near term. You are part of the herd, my friend.

    Do you put any faith at all in contrary analysis? If everyone has already sold their silver, who is left to sell?

    Here’s what is happening: the dollar is dying. How long can a government run fiscal deficits on the order of 10% of GDP? Answer: after about three years, the currency dies.

  • Dollar=Silver

    TWO WORDS: Bullish concensus. Jon Nadler of Kitco revealed a bullish concensus among investment advisors of 91% during the third week of March, 2011. This is about the same bullish concensus for internet stocks in winter of 1999, as well as for the DJIA during the summer of 1987. And during these bubbles we heard the same line from “professional investors,” which is “things are different this time.” Four words for those who state this line regarding silver: “you’re young and stupid.”

  • Silver Savant

    I have been seeing the same fin. anal-ist articles since silver broke free of central bank control 10 years ago. What is true, is that Silver is overbought by any measure on the very short term. What is also true, is that this time it is different. Silver has been in a production deficit for 60 plus years and all the stockpiles are gone. It is much rarer than gold and much more needed than gold. On top of that, it is in it’s highest demand ever, as a currency. The final topping number for Silver will be proportionally much higher than 30 years ago when there was 5 times as much of it, half as many people and 1/5th the amount of money sloshing around. The inflation adjusted price is $250/oz. My prediction, 10 years ago, was that this will become a mania and drive the price of Silver over $500. Today, the dollar is worth half as much, so the price in today’s dollar is over $1000.

  • Jason Emery

    Dollar-Silver—Be very careful about anything written by Jon Nadler. He has been nonstop bearish on gold and silver for years. A couple of months ago he predicted that we would see sub $1000/oz gold by now.

    I’m 99.9% certain he is a paid basher for the bullion banks. How else could someone who is so consistently wrong keep their job?

    If you are going to quote someone, I suggest that you quote a fellow that is respected in the industry, such as Hulbert Gold Newsletter Sentiment Index. They indicate that GOLD sentiment is high, so you might have a point. But the primary feature of the last 7 months of this precious metal bull market is how silver has divorced itself from gold.

    If you can explain how silver is outperforming gold, even as gold sentiment is much higher than silver sentiment, you will gain ‘Guru’ status, lol.

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

    Jason,

    I hope you are right for your sake. Honestly. I have no stake in he silver game. It looks risky to me, but what do I know? I wish you luck. Dont take the article personally. I’ll be playing in other ponds though….

  • Jason Emery

    Cullen,

    I certainly agree with your technical analysis. I guess my question is, do you exercise a lot of control over where your articles get published? As I stated above, your analysis is part of a herd mentality at 321gold.com: i.e. ‘silver is dangerously overbought’. Sometimes the herd is right, but rarely. Everyone is wildly bullish on gold and cautious on silver, at least in the articles published at 321gold.com.

    So if almost all of the precious metal newsletter writers and TA guys have already sold their silver, then who’s buying? I’m not, I’m looking at the same chart you are. I’m already overweight silver anyway. If it’s retail buying, we get the big correction. If it is ‘giants’, the dollar is toast. My guess is that it is mainly the Chinese that are cornering silver. Good luck in your ‘ponds’, lol.

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

    Jason,

    My articles get picked up by various outfits. The 321 gold site just posted a link back to pragcap. I can’t control that.

    I can’t predict the future. I don’t pretend to be able to. All I do is look at large macro trends and evaluate the odds of a potential outcome. The price increase in silver looks unsustainable to me. That doesn’t mean it won’t go up 50% from here. But when it corrects it is going to be nasty. The risk on either side of the trade appears extreme to me. That’s the message I am trying to get across. If you want to bet on silver then be my guest. I am not trying to advise you on what you should or should not do. I am merely stating my opinion that silver looks very risky and that I will not be participating in the move in either direction due to extreme risks….

  • dethray

    doug casey’s site gave a very through break down of where all the silver is going–we are not even close to a top-silver has always been choppy- i am holding on,selling half at 100 bucks,the rest at 200-all mining stocks 3 months after that-dick young of intelligence report says 11000 gold this year!he never goes out on a limb like that

  • robertdinero

    The author is right and wrong. Right, it’s not “different this time”. Wrong, it’s the dollar that’s in a bubble that’s starting to rapidly deflate. Fiat currencies always fail; it’s not different this time. The author’s unspoken assumption is that the US dollar is forever. That is saying it’s different this time. This guy’s view of history is only 40 years. That’s how long the unbacked dollar has been around. Silver may be short term overbought (emphasize “may”). I find guys like this frustrating because their ignorance is so transparent. Plus, they always try to sound like wise contrarians when really they are just echoing the main stream view. Did this guy buy any silver 10 years ago? 5 years ago? Two years ago? And notice how much leeway he gives himself. Silver can go 30% higher before he is wrong. By that time everyone will have forgotten he even wrote the article and he sure won’t mention it. I’ve seen this over and over. Articles like this are a dime a dozen. And a dime ain’t what it used to be.

  • Jason Emery

    Robertdinero–I don’t know where you found this article, but go to 321gold.com. This article is listed as being from “PragCap’ on 07-april. A few articles above it is one by Morris Hubbertt. Now THERE is annoying idiot.

    He has been issuing these ‘sell silver’ alerts for months. In particular, one in early Feb. at $30/oz. Then a week later at $33. Then more recently at $37.

    All these guys are pleading with the market to bring silver back down so they can get back in. Absolutely pathetic.

    So I repeat, since all these experts have already sold, or in the case of Cullen (here) never intended to buy or sell in the first place, who is left to sell? Don’t count me. I have only physical silver, buried under the Doberman’s water dish and a slab of concrete, lol. Buy the time I bust through the concrete, silver will be at $100/oz, lol.

  • Dollar=Silver

    Manias are manias that are subject to corrections, regardless if it’s internet stocks, defense stocks, HIV cures, Florida real estate, tulips, or currencies (both real and illusory). We’ve heard Eric Sprott, Bob Quattermain, and every silver guru’s “logical” reason why demand in physical silver will outstrip supply and thus favor physical silver to be valued over $100 an ounce. Silver is in a bull market trend, but this current “logical” notion of demand affecting the current physical supply is what brings on manias within both bull and bear markets. The current exponential rise in silver (or any investment for that matter) reveals a mania developing, regardless of the legal or investment ramifications of silver prices. Manias usually get corrections to where such manias usually begin, and in this case it may be around the price area where QE2 was announced (since this was when the price of silver really started to move). Interestingly, this is also the approximate area where Eric Sprott entered the market, along with Bob Quattermain’s company PVG.TO (which may be one of the most undervalued investments at this time).

  • A

    Simple, we no longer use Kodak chemical film, Indians doesn’t make silver pots like before. So where does the demand come from excpet speculation? Yam Bufffett withold a bunch under in Swiss’s mountain cave. Inflation projection doesn’t call for a 420% in the next half year…it is all these ETF & traders who will get burned eventually.

  • Dai

    Sitting here in Canada, the picture is very different. I hold both gold and silver bullion and watch their value daily. You will say that gold is soaring. I say no, the value in my Canadian dollars is only up slightly. Why? This is because gold is not in a bubble, it is just that the US dollar is on the skids and the price of gold is up only in US$ . The Canadian Dollar has been pretty steady with the Euro and UK Pound, while ths US$ decends. The only way that the price of gold will come down in the quoted currency of UD$ is for the value of the UD$ to come back up. The situation with silver is very simmilar, however, silver was far too low with respect to gold and some catch-up has been occuring. Personally I do not expect the US$ to strengthen during the current economic Chaos.
    Respectfully, Dai

  • Jrsun

    Yeah ” qe is not inflationary there will be no inflation, silver is about to burst”
    Whatever you say man

  • Sub $4.00 Silver

    Read pretty much every response in this thread and a lot of good points were raised.

    I bought my first chunk of physical AG for $3.63/oz. I also bought at $4, $5, $6 and $7.

    In early 2008 I shorted GS and their socio-path ilk. I then covered in late 2008 and bought a boat load more AG with the proceeds at $8.60 $10 and $11.

    The real problem lies with the “Boyz’ Paper Asset Ponzi Scheme” and their utter disrespect for everyone else. Relatively few still seem to totally grasp this but at least there are some waking up where ten years ago there were none. By the time enough people discover the con job I’ll be selling my cache at 3 and 4 digit levels.

    My only concern is what kind of a world four-digit silver will be?

  • mark

    Can you elaborate on that Gold/UST trade? (did a search but couldn’t find anything). Thanks.

  • http://antik-links.blogspot.com/ Tom

    Invest more in silver!!!

  • Shane

    Silver is too small of a market copared to even the newspaper market to burst in a few days. I agree we are in uncharted waters..Historically gold is 16-30 times more expensive than gold. That is why silver right now is playing catch up..And you take these gains you make and then be pessimistic about future and when it will collapse .. Face it enjoy the ride..
    Would it be different if lets say or we were talking about oil shares?? I dont think so because you in general think oil is going to go up..
    Dont forget 95 percent of silver that is mined is for industrial purposes, photography,comp chips, etc etc. and that 95 percent is lost forever..
    So would you not think that silver is more scarce than gold???
    Enjoy the ride.. You probably will never see the likes of this again…Silver at 40 is here to stay whether you believe it or not…

  • John Hogan

    Cullen,

    I for one am very pleased to see you write this up. I have been following fundamentals such as USGS and Silver Institute data on silver and gold for some time now, and a year ago decided, for much the same reasons that Warren Buffet did, that silver was extremely undervalued on the long term (15-year) time horizon. I intended to make a major purchase as a long-term investment, but didn’t really move quickly enough to beat the price rise that started shortly after that time. I kept waiting for silver to correct to at least the mid twenties to make a purchase at a price that I felt was probably at least a semi-reasonable short-term price. I have become rather confused and concerned of late regarding the sudden runup in price until reading about the Chinese housing bubble. After coming to the conclusion that silver seemed to be entering the parabolic-rise stage characteristic of a bubble, which would certainly not outlast the Chinese housing (condo) bubble, I started looking around to see if other people had reached the same conclusion. The people calling this a bubble seem to be remarkably hard to find on the web. Lots of people are seeing a gold bubble even though gold has had a steady ten-year rise without the characteristic parabolic rise always seen in a bubble, yet people don’t seem to see a silver bubble here. I am genuinely baffled. The only possible scenario I can see which would make my take on this turn out wrong is if a huge number of people all came to the same long-term conclusions I did a year ago and acted on this knowledge. (Boy would THAT blow my mind.) In this case this this price runup actually WILL turn out to be different and by waiting for this “bubble” to pop to make a purchase I will royally screw myself. It is gratifying to see at least a few people calling this a bubble, since all of the other bubbles I have witnessed HAVE had at least a few people recognize them before they popped. I was quite confident that NASDAQ and housing were in bubble terrain well before these bubbles popped thanks in part to a considerable number of cogent analyses by some very well-informed people well in advance of these bubbles popping. I really expect to see opinions expressed on both sides of this issue, but it puzzles me how few people are expressing your point of view at this point in time. Maybe the 7-month price doubling (123% rise per year) is just the start of this bubble and this one will really blow hard. That would be a good thing for me as I will ultimately be able to buy really cheaply when the bubble pops.