Mark McHugh

Remembering The Last Time This Happened To Silver……

In Open Thread on Tuesday, September 27, 2011 at 6:54 am

If you’re a silver investor, you may have that strange feeling you’ve been here before.  That’s because you have.  Here’s a chart comparing the price action of  SLV from 12/17/2007 – 8/11/2008 to the price action of SLV 2/01/2011 – 9/23/2011:

Can you tell which is which?

The correct answer is: It doesn’t matter.  Same movie, different year.  In the case of 2008, the illustrated smackdown in silver preceded the Lehman collapse by about 4 weeks.  Silver would not bottom until October 24, after Congress sold the grandkids into slavery for the sake of Goldman Sachs and other abominations of capitalism.  I don’t know exactly what is going to happen in the next month or so, but I am sure it’s going to be huge and I’m sure that once again when everyone else panics,  the smartest response will be to buy silver.

Silver was $4.18 when those planes hit the twin towers, $11.20 when Congress and Wall Street hijacked America (TARP – 10/3/2008), and $17.69 when the flash crash happened (5/6/2010).  It’s not a bubble;  it’s a rapidly vanishing resource, and when the next shoe drops, you should buy it.

In July, I told readers that the “set-up” for a market crash simply wasn’t there - that has changed.  In 2008, large traders piled into the US dollar just prior to the carnage (just like they are now).   As the dollar soared in the ensuing weeks, everything else (most notably America’s future) went in the crapper.  Silver was dirt cheap – you just had to be smart enough to recognize that.

There are however some notable differences between 2008 and 2011:

  • We’re $5 Trillion deeper in debt.
  • There’s 50 million fewer ounces of registered silver at the COMEX

On October 24, 2008 the LBMA silver fix was $8.88 and there was about 83.4 million ounces available for delivery at the COMEX.  On April 28, 2011 the silver fix peaked at $48.70 and registered silver stood at 33.3 million .  So just to review, a 450% increase in the price of silver produced a 63% decrease in the amount of silver offered for settlement:

Abandon all hope of price discovery ye who enter here.  Clearly the COMEX is hurtling toward the date with destiny you’ve been told about over and over (it’s only a matter of when).  When silver dipped to $8.80, the market value of the registered inventory at the COMEX was a measly $740M.  After the recent price gyrations, registered silver is now 31.04 million ounces, so that value now stands at $950M, or less than half the value of today’s SLV transactions ($2.1B).  How crazy is that?  I think Ben Franklin would say something like:

Those who would trade paper silver to get more fiat, deserve neither fiat nor silver.

***

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  1. Thanks. Yours is the most cogent, most relevant, and most welcome and reassuring response to the PM smack down that I have found. And I know where to look! Thanks again.

  2. Leave it to old Ben to hammer it home… awesome.

    What’s with the ‘now’ link? – http://en.wordpress.com/types-of-blogs/

  3. It should be to a US dollar futures chart at Finviz,com

    http://finviz.com/futures_charts.ashx?t=DX

    I double checked the link…I don’t know why it sends people to wordpress.

    Maybe it’s because it .ashx (?)

    The chart is important because it shows the commitment of traders at the bottom. Somebody really really likes the dollar all of a sudden, and when the dollar goes up, everything else goes down.

  4. Thanks WC!

    Writing isn’t easy for me, but knowing that I connect with the occasional soul out there makes it all worth while.

  5. Thanks Mark.

  6. Amazing that the two graphs mirror each other so closely. Hard to believe it is a random act.

  7. My theory is that somewhere out there, there’s research that shows how people react to various price changes. For example, I’ve read that for many people, twelve weeks is a pivotal time frame for changes people’s behavior – that’s when many will quit an exercise regiment or other lifestyle change. I realize this isn’t a great paralell, but I think you get the idea.

    I think in 2008, a lot of people gave up on silver when they should have been buying with both hands. So that Jedi mind trick worked like a charm. Why not run the same play?

    If I am right about these events foreshadowing a broader market crash (again), many people will make all the wrong moves (again). I must admit, seeing silver go below $9 in 2008 shook my faith, but it was truly a great buying opportunity. I still see a very bright future for silver (and I think you do too), but we’re gonna have to get through another storm first.

    Here’s hoping we play it right….

  8. Interesting theory Mark, I had never considered something like that…

  9. “The Force can have a strong influence on the weak-minded.”
    ―Obi-Wan Kenobi

    “Your eyes can deceive you, don’t trust them.”
    ―Obi-Wan Kenobi

    Mark = Obi Wan Kenobi

    …and any other Star Wars references will only serve to weaken the strength of your theory to the masses.

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