It was three years ago this week that silver experienced what would ultimately be a blowoff parabolic top, north of 49 dollars an ounce. At the time, many in the silver bull camp (myself included) were wondering if silver was repeating its jaw dropping price performance from 1978 to 1980, where the white metal advanced ten times in two years, and ultimately advanced roughly 30 fold off of its low set just 9 years earlier, in 1971, below 1.30 an ounce. If silver had repeated that price performance in the cyclical bull market that topped in 2011, the silver price would have ended up at nearly 150 dollars an ounce.
Ultimately, and as most reading this surely know, the silver price did not pierce through the stiff resistance at 50 dollars created way back in January of 1980, and the price of the poor man’s precious metal is still off 60% as I write this. As someone sympathetic to those who always want to hold some silver no matter what price, I was not among those telling people to dump their physical silver in 2011 because the vast majority of people– as a point of fact– have exactly zero exposure to silver or to any other real, tangible asset outside the banking system. But- and I am proud of this– I was able to warn at least a few people then speculating on the long side with leveraged futures positions in a market going parabolic to watch their backs, and I hope that those people in May of 2011 took my advice. For those who held on, as I did, to the vast majority of the small amount of physical silver we own as a crisis hedge, the price decline of the last three years has simply provided us an opportunity to buy more insurance. Our conviction remains.
And I would like to point out that silver represents a far greater deal than gold at the moment. Think about it– for the price of one gold eagle, you can now buy nearly 70 ounces of a metal that has just as long and prestigious a history as money as gold. I think that is an offer worth taking.
Of course now that silver has fallen off of most people’s radar screens (if it ever truly appeared on them in the first place), I doubt that very many people are taking advantage of the great deal in silver and buying hand over fist. This is the way markets work– most people like to buy high and sell low. Nothing particularly new here.
I also would note for those traders out there– and remember my advice is worth what you are paying for it– that what we have experienced in the entire precious metals sector since 2011 is simply a correction within an ongoing bull market. Just because a market has gone down for three years does not mean the secular trend is over. I have beaten the table many, many times on the parallels to the 1968-1971 silver market. I would like to remind everyone focused (as I tend to be) on fundamental factors driving asset prices that in the last summer of 1971, when Nixon closed the gold window and ultimately helped to ignite an amazing bull market in all things gold and silver, that the white metal actually dropped for the next three months. That was one of the best examples I can think of Mr. Market providing one of his well-known head fakes to the weak willed and overleveraged among us. Another example that I remember comes from the 1987 crash. Many people who got completely out of stocks before that fateful October thought they had dodged a bullet- and the price performance of the equities markets for the next several years seemed to vindicate their actions. But then, slowly, and when no one was really paying attention, throughout the early and mid 1990s, the conventional stock market went on a tear that put the 1982-1987 bull ride to shame. It turned out that all of those people who sold too early in 1987 were the real suckers– at least in terms of making the most money– as opposed to those who held on through thick and thin.
I’m sure there are some out there who are grateful that they dumped all of their silver at 48 dollars– or even at 28 dollars- over the course of the last three years. They have long forgotten about all of the fundamental reasons to own silver (zero percent interest rates, insolvent banks and governments, Asian metal demand, a weakened dollar reserve system, movements toward alternative currencies, and the list goes on.) But I have a strange feeling that this silver bull has some more thrills ahead for those positioned on the long side. And, I know that bull markets always love to throw off the most people possible before the real fun begins.