Global Currency Crisis & Gold – What’s Really Going to Happen in 2011 – 2012

Following on from the first 2 parts in this series: Whats really going to happen in 2010 Whats going to happen in 2010/2011 – part II Another great writer and analyst makes it into our categories section, Bob Chapman of Global research with a seminal must read piece outlining the road ahead towards a new [...]

$60 Silver – Just How High is Silver Going To Go? (II)

by admin on 15/11/2010

A little while back we were musing about just how big the upcoming explosion on silver prices would be and featured an article by James Turk, who could not have been more correct in his call. At the time the Silver price was $21 ish, we’re now hovering around the $26 mark having been as high as $29.00, approaching a 30% move, with a little pullback.

Today is the turn of another fantastic writer who we could not agree with more on most things.This article was also written before the latest big moves, please note (with the benefit of hindsight) the accuracy of Ed’s predictions on the silver price.  If you are not subscribed to Ed Steer’s Gold & Silver Daily we highly recommend that you do. Here is Ed on why he is ALL IN (as are we) and thinks Silver could double or treble in a very short time now, it’s absolutely worth your time.

Ed Steer,
Editor of  Ed Steer’s Gold & Silver Daily from Casey Research, and Board Member at The Gold Anti-Trust Action Committee (GATA)

“..If ever I’ve given you a must-read story, this is it. It’s all about silver… And it’ll be worth your time to read this carefully..”

Right now I’m seeing a strong case developing for silver’s price to triple – taking the spot price from just above $20 to over $60… or even higher. Multiple markets are all pushing upward on silver’s price. As I’ll share below, there are two big reasons why that push could get a lot harder.

And if we look at history, we see this can happen fast. Case in point, when silver’s price spiked in late 1979 and early 1980, it took only 5 months for silver to move from $6 to $48 (that’s a move from $18 to $144 in today’s dollars).

Not only that – there’s reason to believe silver’s price spike may be triggered soon. You know through my work with GATA and in my daily newsletter, I address stories of short-selling and techniques edging on market manipulation by the major bullion banks. Well, if you read below, you’ll discover the new policy out of the CFTC that’s about to make it a lot harder to profit from short-selling silver – and why this may trigger a silver price frenzy similar to the 1979-1980 silver spike.

And finally, I’ll share with you who I’m turning to for the best strategy to put your investment dollars to work to take advantage of a big rally in silver.

This metals industry expert is who I go to for my silver and gold investment strategy – because he and his team always deliver well-researched recommendations to help me grow and guard my wealth.

One of this expert’s current silver stock picks has beaten silver’s gains by 5.5X since the November 2008 low. This means if you’d put $5,000 into physical silver at the November ’08 low, you’d be sitting on $9,203 worth of silver today. But $5,000 in this stock, and you’d have $28,116 today. (That’s $18,913 more for every $5,000 invested.) Learn below why he thinks this is only the beginning – and how to get in on the next move.

But I don’t want to get ahead of myself. So let’s take a look at where we’re at now, and answer the question: “What’s going on in the market that supports a case for a big move up in silver?”

Two Reasons Why Silver May Rise Steeply

$60 silver – roughly triple today’s price – is a bold prediction, I know. Yet when I look at two important factors, I tend to see it as a fairly conservative and well-founded estimate.

First is what we can call “the supply-demand tight-rope act.” And second is the Fed’s pro-inflation “quantitative easing” policy. Let’s look at each – and why together they support a strong case for a steep increase in silver’s price. (To be triggered by another factor – which I’ll also share below.)

The Supply-Demand Tight-Rope Act

It’s well-known that silver demand is outpacing new supply. But by how much (and what that means) may be a bit surprising.

For one, mining can’t keep up with silver demand. Last year’s mine production was at 709.9 million ounces – while demand (actual silver use) was 889 million ounces. That gap had to be filled from somewhere, and last year it was covered by sales of government stockpiles and old silver scrap.

But the stockpiles are running out. In 2005 we were worried because silver’s above-ground government stockpiles had hit the low mark of 700 million ounces. That was just five years ago… Now it’s a lot worse. Last year, net worldwide stocks of silver decreased by another 86% year over year to 20.2 million ounces. That’s only enough in the stockpiles to meet eight days’ total silver demand.

Nobody’s selling scrap either. Silver scrap sales have dropped for three consecutive years and have hit a 13-year low. As the stockpiles disappear, there’s no reason to believe scrap sales will fill the gap they leave.

And here’s the kicker. We’re seeing more and more days where there are buyers who’ve already bought and paid for physical delivery of silver – yet the seller has none to give them. Decide for yourself, but what that could mean is that the supply is so low that some days it’s actually impossible to fill orders.

Without stockpiles and scrap sales to keep up with demand, the only way to stay balanced on the supply-demand tight-rope is to reduce demand.

And you know what that means: a fast increase in silver prices.

But where’s the excess silver demand coming from?

Investors, for one, are driving demand for silver. Silver’s long been known as “poor man’s gold” – a way to invest in precious metals without the high cost per ounce gold brings. Well, more and more investors are being turned on to silver for this very reason – and the investment market for silver is growing at a rapid rate. Net investment demand for silver is up 622% since just 2007:

And this is pure bullion demand – it doesn’t even include the demand for coins and collectible medallions.

Calls for Physical Delivery Putting More Pressure on Silver’s Price

Both individual and institutional investors are growing unsettled about their paper silver contracts. What once acted as a guarantee for future delivery of silver bullion – and a convenient way to own silver – has now come into question.

Some estimates peg the actual quantity of physical silver at 1-3% of all outstanding contracts. This means that if everyone with a silver contract showed up to take physical delivery tomorrow, at least 97 out of 100 contracts would have no silver to back them up.

Even at a more conservative 10% physical silver availability – or 9 out of 10 contracts being pure paper – we see that there would be a tremendous supply problem if calls for physical delivery were to increase significantly.

As silver’s price heats up, I’m hearing more and more demands for physical silver. And it’s likely they’ll get even louder in the coming weeks.

And it’s investment demand that pushes silver prices up fastest. Compare it to gold or other commodities, and silver’s market is relatively small. That means just a little interest goes a long way to shifting the market… Especially when supplies are short.

The imbalance is getting worse, too. Investors have been compounding the “supply-demand tight-rope act” by flooding into silver in the past couple years. In the early 2000s, when silver prices hovered around $5 an ounce, investors hardly paid attention.

Fast forward to the last couple years, and investors who understood silver’s market conditions enjoyed serious gains as the price spiked to over $20. Of course, in a choppy market, what goes up also must come down, and silver fell below $10 within months – so only those investors with a good exit strategy or industry expert on their side kept the lion’s share of their gains.

(That’s why – even with my finger on the pulse of the market – I’m always turning to the industry expert I’ll introduce you to below to help me get in and out for maximum gains on the market’s big moves.)

When these spikes happen, investors flood into and out of the silver market with irrational exuberance – and because the market’s so small, silver’s price swings big. And market signals are saying in the coming months we may see a rush into silver like we haven’t seen in a long time.

The new silver hoarders are driving demand in a big way, too. Who are these “new silver hoarders?” In short, ETFs. In the last few years, a number of different exchange-traded funds have come on the scene to help investors play silver’s market moves inside tax-sheltered retirement accounts, with more liquidity, and without the extra effort of physically handling the stuff.

Well, some of the most attractive silver ETFs earned their reputations (and grew so much) because they actually take physical delivery of one ounce of silver for every share they sell.

With the silver market heating up, these ETFs have started hoarding ever-bigger silver stockpiles to support demand for their shares – adding demand pressure to the silver market and taking significant supply off the market indefinitely. For one, iShares Silver Trust (SLV) has increased its stocks from 20 million ounces on its start date of May 1, 2006, to over 300 million ounces today.

(Chart of SLV’s holdings and share price since inception, from my friend Nick Laird over at

Dear reader, you don’t have to be a brain surgeon to see what this is doing to the market. It’s only a matter of time before all this action sends silver prices on a big swing to the upside.

Yet investment demand is just a slice of the overall silver market.

What’s also driving core demand, depleting stockpiles, and supporting silver’s increasing prices are all of silver’s “other” uses we investors often forget about.

Industry, for one, accounts for around 40% of annual silver use. What drives high industrial demand are silver’s conductive, reflective, and anti-bacterial qualities that make it useful in batteries, bearings, brazing and soldering, catalysts, various electronics, medical applications, mirrors and reflective coatings, and more. Even the green energy and environmentalist folks are demanding silver and putting it to use in solar cells and water purifiers.

And this is important to note – unlike investing where silver is bought and held, most of these industrial applications “use up” silver and take it off the market for good.

And industry will keep buying even when the price spikes. Because the amount of silver used in each application is so small – and there’s no reasonable substitute for silver in many cases – industrial consumers will pay $20, $60, $100, or more per ounce, without any significant reduction in demand. They just absorb the increased cost or pass it on to consumers.

Plus, there are a number of smaller “consumer” markets for silver that are driving demand, eating up stockpiles, and laying claim to new production as it comes out of the ground.

And even silver producers are betting on the price going up – a small 2.5% of silver demand last year was silver producers de-hedging (getting out of fixed-price contracts) so they can take advantage of increased prices of silver.

And every single one of these markets is drawing down on the total supply of silver – and snatching up pretty much every ounce that comes out of the ground.

But that’s not all…

How “Quantitative Easing” Is Also Pushing Silver Up

Like gold, silver’s price is pushed up quickly when inflation rears its ugly head. And it doesn’t have to be current inflation either. If investors so much as expect inflation (like when Bernanke and the Fed announce new “quantitative easing” policies), they flee equities, bonds, and other dollar-based investments to put their money in hard assets like silver.

And investors are finding plenty of reasons to expect inflation today:

  • Despite numerous head-fakes, it seems this recession isn’t going anywhere. Washington doesn’t quite know what to do about it, besides spend, spend, spend on “stimulus” and “recovery” packages. Only problem is, the national debt has already blown through the 13-trillion mark (that’s over $120,000 per taxpayer – and that doesn’t count future liabilities), and nobody’s relying on a sudden bout of fiscal responsibility to make that go away. So the Washington solution is to make each dollar worth less – and thus easier to pay back.

In fact – and you may agree with me – I believe many of these pro-inflation policies have been a large factor in silver’s strong push up since November 2008. With the state of today’s economy, government debt, and a culture of fiscal irresponsibility, investors are scared what their dollar will be worth in 5 years… 1 year… even 6 months…

So smart investors are using silver as a hedge – to protect their wealth against double-digit inflation like we saw in the 1970s and ‘80s, or the even-worse currency crisis that could hit should inflation get completely out of control.

Sure, they’re using gold, other commodities, and even other currencies too – yet silver seems to be getting extra attention because of all the other factors I’ve described in this report that give you a chance to not only beat inflation, but also profit handily while you do.

Yet among all these factors, you may wonder why NOW is the time to make your big move into silver – rather than waiting 3 months, 6 months, a year, or more for further developments.

The Straw That Breaks the Camel’s Back (and Sends Silver Skyrocketing)

The Technicals Are Calling for a Big Silver Breakout, Too


Silver’s technical chart patterns are pointing to a big breakout, too – targeting a short-term move to $26-$29 based on chart patterns alone.

Take a look at this 9-month ascending triangle pattern, which we’ve just broken out of to the upside:

click to enlarge

This breakout is signaling a move up with a target price in the $26+ range.

Important note: technical signals are never good at predicting pure market mania and the accompanying parabolic price spikes like I expect we’ll see in silver – so use this information instead to confirm we’re about to see some very big upside price movement in silver.

Here’s where things get very interesting.

I mentioned above that silver’s price spike could happen anytime soon. And there’s good reasons why.

First, remember that silver’s market is relatively small – much smaller than gold and oil – and swings easily. A small handful of players can make the market move quickly – speculative capital has always been able to drive big price swings in silver. Just recently we’ve seen swings giving gains of 53.8% and 22.9%, and drops of 21.9% and 19.6% – all within a period of months and even weeks. And on a day-to-day basis it’s not unusual to see spikes and troughs when “Da Boyz” (the big bullion banks) in London and New York start throwing their money around.

Second, it’s important to understand how the market is being moved during these price swings. It’s all about Da Boyz – the bullion banks, led by JPMorgan Chase – selling shorts and profiting from price drops.

[Don't forget to sign up HERE to get involved in Max Keiser's "Crash JP Morgan with FREE Oz of Silver" action]

My friend, silver market analyst Ted Butler, described it best in a recent commentary…

“The commercial traders band together and pretend to sell massive numbers of contracts (emphasis on pretend) on the electronic market. This starts the price snowball rolling down the hill and below the key moving averages, at which point the technical funds started selling on a programmed basis, as they always do. Knowing how and when the technical will sell, the commercials then, in a predetermined and cohesive manner, withhold the bids on thousands of silver contracts they want to buy from the tech funds, so they can cover their own short positions. The commercials set their collective bid at much lower prices than they would have normally, in order to maximize their net collective buy points.”

Decide for yourself, but this looks like market manipulation in spades to me. Ted goes on to call it like he sees it…

“The tech funds aren’t hedgers by definition and, in fact, neither are the commercials. This is what I mean when I say that this big paper futures trading is setting the price of silver, not discovering it. This is a violation of basic commodity law. Our futures markets exist to allow risk transfer by real producers and [real] consumers. This COMEX tech fund/commercial paper trading scheme has absolutely nothing to do with hedging silver production or consumption. It is purely an illegitimate private gambling racket that is setting the price of silver for all the real producers and consumers in the world. I’d like to see someone describe it differently.”

And from my next point, it seems the folks in Washington are starting to agree with Ted…

Third, understand that the CFTC is shutting down the “mechanism” used to profit big from driving the silver price down. Whether or not it’s market manipulation that we’ve been seeing in the silver market, things are about to change – and change big.

The Dodd-Frank Act – the financial reform that was signed into law earlier this year – contained one important provision that should help us independent investors by putting an end to these practices that stink of market manipulation. You see, the reform package requires the U.S. Commodities Futures Trading Commission (CFTC) to establish reasonable position limits on trading futures of silver and other commodities. Something Ted (and I) have been in favor of for years.

He’s been watching the silver market like a hawk for more than 20 years, and now more than ever, he’s quick to tell you Da Boyz have gotten completely out of hand with their short positions. Take the graph below, which he and Nick Laird at put together. It shows how many days of production it would take to cover the short positions of the four largest traders (the “4 or less” are in red) and eight largest traders (the “8 or less” are in green) in a number of commodities markets. In gold and silver, the “4 or less” and “8 or less” traders are almost certainly the bullion banks. Notice how silver especially, and also gold, stands out.

Here’s the chart:

What does this mean? It would take a full half-year of dedicated silver production to cover these short positions. You only get positions like this when there’s significant illegitimate activity going on – not when normal producers and consumers trade based on supply and demand. There’s no way these short positions represent a legitimate hedge against future price fluctuation – and that’s why the CFTC has been ordered to shut this down.

The CFTC limits have not been put into effect yet – they’ve been in bureaucratic lag for a couple months now. But as soon as they are announced, they’ll essentially take away the mechanism Da Boyz have been using to profit from silver’s downside swings. As for a timeline for this announcement, we could be talking days or just a few weeks. But whatever the timeline is, it will be sooner than you expect and come out of the blue.

And that’s the straw that’ll break the camel’s back – and send the silver price skyward.

Because the best way left to make significant profits in the silver market will be to bet on the price going UP.

And it appears Da Boyz have gotten the message. JPMorgan – the leader of the pack – has notified the traders on its prop trading desk (the ones who “play” in the silver futures market) that their jobs are in jeopardy – a good sign they’re shutting the doors on the operation before the whole house crumbles.

With JPMorgan leading the charge, the sticky fingers that have been holding silver’s price down will start to pull out of the market. The pressures pushing the price up will be unleashed. And we’ll likely see a mania pushing silver’s price up well into triple-digit gains (on top of the gains since the November 2008 low).

We only have to look back to 1979-1980 to the last time the CFTC took a serious look at short-selling and manipulation in the silver market to see what scenario is likely to play out. In just a few months, from late 1979 into early 1980, silver shot from $6 to $48 – that would be from $18 to $144 in today’s dollars.

With similar factors in play today, it wouldn’t surprise me to see as much as half that action in silver’s price – more than triple today’s price on silver – once Da Boyz are out of the way and a mania has ensued. And if it goes higher (perhaps matching or exceeding the 8X gains in just a few months from 1979-1980), that wouldn’t surprise me much either.

Looking at silver’s volatile price history and all the factors discussed above, triple today’s silver price in as little as five months is a conservative and well-founded estimate.

That’s why I’m calling for a major jump in silver’s price – possibly even above $60. And why I think you should go “all in” now – because the hammer is poised to fall and we could see this spike start in no time flat.

Since the start of this recession, money has been created from thin air at an astronomical pace. Just take a quick look at the data from the Federal Reserve Bank of St.Louis and you see that at the beginning of the recession (using mid-2008 as a marker) we had a $863 billion monetary base – total money in circulation. Compare that to mid-2010 and there’s over $2 trillion in circulation – more than double the amount of just a couple years ago. While this isn’t showing up in CPI and other key “inflation” indicators (yet), >it’s a recipe for inflation if I’ve ever seen one.  This chart tells the eye-opening tale:

And glad-handed politicians, the Fed, and the U.S. Treasury haven’t stopped – it seems every month brings a new promise from Bernanke and friends to “do what it takes” to help the economy show signs of recovery. (Even if that means firing up the printing press to afford a buyback of T-bonds and other assets.) Sure, this game has worked before to prop up stock prices. But now even the mainstream media are getting hip to what these policies mean – and investors are looking for a safer place to stash their cash than this see-saw party on Wall Street. say..

..what we always say, we are 100% all in Gold & Silver, if you  think now might be a good time protect your wealth with Gold &/or Silver:

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