Silver’s Unrelenting March Higher

Another great guest post from The Bullion Baron.

The current Silver rally is exhilarating.

Even as I write this the chart I’ve used below is basically out of date with Silver having soared higher to almost US$42 during Asian trade today, only around $8 below it’s all time nominal high of $50 set in January 1980.

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

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

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

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

This move also concerns me.

We have increasing coverage of the rally by mainstream media sources, as well as suggestions that Silver is entering a new paradigm:

  • Demand is expected to outstrip production growth. BMO Research analysis indicates silver demand & supply fundamentals should remain positive to the end of 2012E.
  • The prospects of further quantitative easing combined with sovereign debt concerns, competitive ‘fiat’ currency devaluation in western economies, and the return of inflation could result in investment demand exceeding BMO Research’s projections and extending the supply deficit through 2014E.
  • This shift in the supply/demand dynamic lies in contrast to the broader investment perception for silver, which is rooted in the 1990’s when the metal was in abundance, driven by the demise of the photographic industry and Chinese selling.
  • The paradigm shift for silver suggests that the traditional benchmarks for silver, such as the long-term historical ratio with gold, are no longer valid.
  • Accordingly, the markets are searching for a new set of criteria against which to benchmark the price of silver, with a bias to the upside.

BMO Capital Markets

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

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

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

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

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

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

The Bullion Baron

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

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  1. Could talk of a ‘bull’ market be a load of bull?

    This mysterious baron seems to be confusing money with credit & credit with money. Money IS, credit only may be.

    But at least he’s not trying to foist a carbon scam on us.

  2. I’d always rather hoped that the rise in silver was a direct result of Max Keiser’s “Crash JPMorgan Buy Silver” campaign!

    You would be aware that it has been claimed the JPM has massively manipulated the silver market. Zerohedge and MK (and his Silver Liberation Army SLA) have followed this for some time.

  3. @ Anon, that looks like an interesting article! Will have a solid read tonight when I have more time. Currently my PM investments are around 50/50 (Silver/Gold, in dollar terms). I intend on switching more of my portfolio to Gold, waiting for a ratio of 30:1 which might not be that far off…

    @ 3d1k, I don’t think the crash JPM campaign will have any bearing on the company (I am actually of the belief that JPM is long PMs, the COMEX shorts potentially being a hedge), but I think it may have contributed to the kickstart in retail level buying which has resulted in shortages of a varierty of Silver bars and coins in Australia and worldwide.

    While I’ve never seen any solid evidence of large scale Silver manipulation I think it’s obvious that some of the bigger players use their weight to push around the price at times, but I suspect this is the case in all markets, not just PMs.

  4. I saw this in another forum, and thought it worth repeating:


    Here are the salient facts:

    * At present solar power contributes only around 1% of global electricity generation (YES, THAT’S ONE PERCENT!)

    * China and India have pledged to increase solar capacity to 30GW and 20GW respectively by 2020!

    * An average solar panel contains about 20 grams of silver.

    * There is a very, very good chance that a degree of justifiable panic over climate change could take hold in the next decade, prompting an Apollo-scale effort to switch to renewables, and solar PV panels will be a large part of that.

    * Silver is also used in other types of solar power generation, namely in the mirrors used in CSP (concentrated solar power), because it’s the most reflective metal on earth and more efficient than aluminium by several percent, in an application where every % is important.

    Critics may say that thin-film, which uses much less silver (eg nanofilms), or no silver, are going to replace the usual PV cell panels. But while thin-film cells are gaining some traction in the market, PV cells still represent about 90% of all solar cells produced. Thin-film is never going to replace PV cells because PV cells are much more compact and fit better onto roofs. Thin-film cells are also less efficient, delivering 8-12% efficiency against 14-20% for silicon cells.

    Approximately 800 tonnes of silver was used in PV cells in 2009, which translated to about 8% of silver industrial demand and 4% of global silver supply. Barclays estimates silver usage in solar panels could hit 2,000 tonnes by 2012. This would equate to about 7% of global silver output. This would still see solar as a tiny producer of electricity in a world on the precipice of potentially catastrophic climate change!

    • Thats extremely interesting Sceptic.

      One of the major differences between the non-gold precious metals (silver, platinum and palladium) are the many industrial uses – where the metal is used and allocated (hence total stock/supply drops over time and is reliant upon new supply) and the fact that gold is not a rare metal.

      Almost all mined gold is still accounted for (in bank vaults and jewellery boxes) and even though peak supply has probably passed, there is plenty in the ground (Australia having one of the biggest reserves) based on any modelled industrial utility (gold is only really used for industrial purposes when it is cheap)

      If gold is ever used for monetary purposes there is no “need” for additional ounces – you just adjust the monetary base (i.e from $1400 an ounce to $3000 an ounce or higher).

      Silver is quite different – but let’s not get all Yellen on this – supply/demand is not fundamental to price movement: speculation is.

      • Yes, quite. I’ve read that there is more gold above ground than silver, and apart from “junk silver” (old coins), the possibilities for recycling silver are small. And the USGS says silver will be exhausted in about 20 years (I predict sooner, because mining is very energy intensive and energy is getting much more expensive, plus mining is a huge emitter of CO2, and that’s going to be taxed/curtailed soon too).

        I just think the medium- to long-term potential is explosive, for silver.

  5. Does have at least a technical mania feel about it, which is, IMHO, of some concern (though I own a fair bit of silver!)

    I guess it would be worth getting an idea of how the current mania phase (?) is looking:

    1) overseas (not just the US, India and China, though significant places!)

    2) in the public – does the current technical silver mania qualify as a general public mania?

    There might be other relevant angles to consider, too…

    I honestly don’t know the answers to these questions.