THE SILVER REVERSE
BUBBLE OF 2012
In late 2008, I initially wrote about what I thought was a “reverse bubble” in silver. In other words, artificial selling pushed the price of silver below its true market price. For a brief moment toward the end of 2008, the price of silver on the futures market was actually lower than a silver miner’s cost of mining it. The culprit was excessive shorting on the futures exchange by several large financial institutions. This excessive short selling in silver futures has been painstakingly documented for many years by one of the world’s leading silver analysts, Ted Butler.
Whenever an asset’s price is artificially pushed down below its true market price, the resulting move boomerangs to the upside sooner or later (usually sooner). This is essentially a “reverse bubble”. What happened to silver?
Silver hit a mind-boggling low of $8.88 (spot price) on November 24, 2008. It then went on a strong rally hitting $48.70 on April 28, 2011. It did touch $49.85 overseas during April 29th. That 29-month rally resulted in a gain of about 461% before a sharp correction in May 2011 took silver to the $30s.
As I write this, silver is hovering around $31 and has been consolidating since mid-2011. Massive shorting by a handful of large institutions has again entered the picture. Has silver entered its second “reverse bubble”?
Judging by the supply/demand data and market machinations (including excessive shorting in the silver futures market), I believe that the answer is a resounding “YES”.
What will silver’s price look like a year from now…or 29 months from now? I am on record as forecasting that silver will hit $100 during 2012-2013. If silver were to mirror its percentage run from 2008-2011, then you are talking about silver’s price being in the general vicinity of $142. There are some that offer compelling views that silver could easily exceed $200 in the same general time frame.
Paul Mladjenovic, CFP is a national seminar leader, author of the books Precious Metals Investing for Dummies and Stock Investing for Dummies and the editor of Prosperity Alert, a free financial newsletter available at www.SuperMoneyLinks.com.