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.

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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  1. 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.

  2. 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.

  3. 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.

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

  5. 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 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..

  6. 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.

  7. 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?

  8. 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

  9. 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.

  10. Cullen-”I’m not calling a top…..”

    Yes you are. But that’s o.k.

    It’s funny. I saw your article at 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.

    • 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….

      • 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 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

        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.

        • 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….

  11. 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.”

  12. 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.

  13. 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.

    • 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).

  14. 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

  15. 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.

    • Robertdinero–I don’t know where you found this article, but go to 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.

  16. 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.

  17. 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

  18. 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?

  19. 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…