I believe there exists the real possibility of a short squeeze in silver this year or in 2011. That short squeeze will propel silver to – and probably over – its January 1980 record high of $50 per ounce. That event will mark an important step in silver’s bull market. Everything that has occurred in silver over the last thirty years is simply base-building, as can be seen in the following chart.
The base-building is marked by the two long-term gold lines that look like a “huge smile,” as one of my readers remarked.
From 1980 to the 1991 low, silver was being ‘distributed’. In other words, silver sellers were more aggressive than silver buyers. Eventually, those circumstances changed, and silver’s price stopped falling. The so-called smart money started recognizing silver’s extraordinary undervaluation. Buying power began to exceed selling pressure. Its price began to rise and has been working its way higher ever since. Silver has been rising this decade within the uptrend channel marked by the two [red] parallel lines.
Silver’s rise from $3.51 in February 1991 to $18.45 at present – approximately a 9.1% annual rate of appreciation over this 19-year period – pales in comparison to what lies ahead. Silver is still in stage-1 of its bull market; the big price gains don’t start occurring until widespread participation by the public begins in stage-2, but that will not begin until silver breaks out of its base when $50 is eventually hurdled. With that event silver will start garnering worldwide attention just like gold started doing when gold entered stage-2 of its bull market by hurdling above $1,000.
The speculative stage-3 for silver, which will be marked by extraordinary price gains like those of silver’s last stage-3 in 1979-1980, is still far in the future.