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The Future of Silver Investing

January 13, 2010
10qk

Daily Reckoning

3 followers
Silver jumped out of the gate to begin 2010 with a flying start. It climbed a remarkable 9.7% in this year’s first week of trading to end the week at $18.45. From its $8.79 low barely fourteen months ago after the de-leveraging and mass liquidation of assets resulting from the Lehman Brothers collapse, silver has climbed an astounding 110%. But the upside fireworks have hardly begun.

DRUS01-13-10-3.GIF

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.

DRUS01-13-10-4.GIF

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.

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Daily Reckoning
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