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$50-ish Peak in Silver Coming? Hunting the Top

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$50-ish Peak in Silver Coming? Hunting the Top

The Hunt brother's historical moment beckons

================================================

 

(originally posted on DrBubb's Diary) / Link here: http://tinyurl.com/slv50

 

SLW/SILVER ratio today

(chart)

I'm back short on SLW again, thinking silver is possibly going parabolic;

Silver Wheaton is a broker - it mines no silver, it gets a piece of the production of others.

The model works well until some companies prove unable to deliver production, or default.

 

I have heard there are some minor problems, but with no specifics.

Here's the chart on its own:

 

SLW / Silver Wheaton ... update

SLW.gif.jpg

 

Mostly, I think it is lagging because those who own silver stocks are afraid of the size of the silver move, and are taking profits.

 

BTW, Silver isn't ready to Top... yet.

 

SLV/ Silver ... update

slv.gif.jpg

 

We are now at a point like the previous red arrow.

A Top normally does not come when the price is so far above the 21d ma. Nor with Volume still rising.

Like last time, it will take a slowdown in the rate of ascent, and probably at least a few more dollars, as the MA catches up.

 

The old high when, when the Hunts were buying it, was $48.70 in January 1980*. Silver may need to test test that, and exceed it, to put in this year's important top.

 

== == ==

 

*Nelson Bunker Hunt and William Herbert Hunt, the sons of Texas oil billionaire Haroldson Lafayette Hunt, Jr., had for some time been attempting to corner the market in silver. In 1979, the price of silver jumped from $6/oz to an all-time record high of $48.70/oz. The brothers were estimated to hold one third of the entire world supply of silver (other than that held by governments). The situation for other prospective purchasers of silver was so dire that the jeweller Tiffanys took out a full page ad in the New York Times, condemning the Hunt Brothers and stating "We think it is unconscionable for anyone to hoard several billion, yes billion, dollars worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver".[1]

 

But on January 7, 1980, in response to the Hunt's accumulation, the exchange rules regarding leverage were changed, when COMEX adopted "Silver Rule 7" placing heavy restrictions on the purchase of commodities on margin. The Hunt brothers had borrowed heavily to finance their purchases, and as the price began to fall again, dropping over 50% in just four days, they were unable to meet their obligations, causing panic in the markets.

/source: http://en.wikipedia.org/wiki/Silver_Thursday

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HUNTING SILVER

 

In the 1970s, a group of wealthy Texans decided to attempt to corner the world silver market as insurance against rising inflation. The Hunt brothers, Nelson Bunker, Herbert, and Lamar were heirs to a multi-billion dollar oil fortune created by their father, wildcatter H.L. Hunt. When the Hunt brothers began buying up silver in 1973, it was only valued at $1.95 per ounce. By 1979, it was trading at $5 per ounce, so it would seem that they had made a good investment. The Hunts, however, were no ordinary investors.

. . .

There is a catch, however: if the price of the commodity drops in the meantime, investors have to pay maintenance margins. This is where the Hunt brothers eventually got into big trouble. By January of 1980 federal regulators took note of the huge portion of the world's silver controlled by the Hunts and their associates - at least 50%. Not to mention that the Hunts' market manipulations had caused the price of silver to spike to over $50 an ounce, up from $9 per ounce only six months earlier.

. . .

The government had finally forced the Hunts Brothers' hand. They could no longer buy silver, and they could not sell what they already held, because there were not enough buyers. The Hunts were forced to sit tight as the price of silver dropped, and margin calls came in that they struggled to meet. By March of 1980, the billionaire Hunts were running out of money.

 

On March 14, 1980, the other shoe dropped when the Federal Reserve instructed banks to cease lending money to speculators. (It was technically a voluntary policy, but no bank wants to cross the Fed.) It was widely assumed that this policy was in fact directed at the Hunts. The Fed achieved their goal; short on assets, the Hunts were no longer able to meet their margin calls.

 

Hunt Brothers Market Spike & Silver Thursday.

429869_f260.jpg

Annual average price of silver in US dollars.

 

Silver Thursday Crash

March 27, 1980 is known as "Silver Thursday". This is the day that the whole situation came to a head. Silver prices fell by half, from $21.62 to $10.80 per ounce. In addition, the stock market took a big hit, as firms connected to the Hunts dumped the stock the brothers had provided as collateral. In short, the Hunt brothers were ruined. They were forced into bankruptcy, and in 1988, they were convicted of conspiring to manipulate the silver market.

 

/source: http://hubpages.com/hub/Silver-Prices---CurrentPrice-and-Historical-Value

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We are all Hunt brothers now. There are more of us than there are of them.

 

No point looking back at the late 70s for guidance as at that time there was still some genuine wealth producing capability in the US. Now there is just a giant credit junkie with a rust belt in place of manufacturing and the printing presses running day and night to make up the difference. Silver's run may be partly speculative but not much - most is driven by an obvious Achilles heel in the crumbling dollar ponzi scheme.

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We are all Hunt brothers now. There are more of us than there are of them.

No point looking back at the late 70s...

As Tom Obrien said today: "If this was real, then Gold would be going too."

 

Here's the ratio of Gold-to-Silver, showing how much Gold is lagging:

 

AUtoAG.png.jpg

 

Eyeballing the charts, I see a breakdown at a Ratio level near 64:1. If we go to HALF that level, then a target might be 32:1. We closed on Thursday at: Ratio-32.21, that's Gold-$1504.61 and Silver-$46.57. (As general levels, you may want to note: $50 x 32 = $1600. And $1650/ 32 = $51.56.)

 

Of course, pegging that old Silver high, near $50 makes great sense. And if I was long Silver right now, I would be holding off in my selling wating for one or both of the following to occur:

 

+ A new high (for THIS run) on lighter volume, or

 

+ The Old Hunt-high (of $48.70/oz) being pegged.

 

But once the top is made, and "the modern day Hunts" turn sellers, you may see a very nasty correction. If you are not long yet, I would be waiting for the correction. The correction will give you a much better buying opportunity than you see today. It may take a nimble seller to get out on this year's high, wherever it is.

 

But let's try to find it together.

 

== ==

 

BTW, if you really want to buy SLV, look at a Bull Spread on SLV as a "better alternative":

 

SLV : (Spot: $45.54)

BULL SPREAD

===Strike: May11: Jun11 : Jul.11

Buy- : 44c : $3.03 : $3.75 : $4.33 :

Sell- : 50c : $0.84 : $1.43 : $1.97 :

==========================

Spread -- : $2.19 : $2.32 : $2.36 :

Breakeven: 46.19 : 46.32 : 46.36 :

Pot'l Gain : $3.81 : $3.68 : $3.64 :

RatioUp/D R1.74 : R1.59 : R1.54

Target :

Put strike: $ 48 p : $47 p : $46 p :

Cost----- : $3.80 : $3.85 : $3.88 :

CLOSE: P&L

At strike : (1.99) : (3.07): (4.24) :

At $50.00 $0.01 : (0.17): (0.24) : Does not improve at higher prices

At $40.00 $2.01 : $0.83: (0.24) : Improves at lower prices

 

A rise of just $0.65-$0.82 / 1.4-1.8% - puts you at breakeven.

And your potential gain on the Spread, exceeds your potential loss.

 

For the May trade: If prices stay at $45.54, you have an option worth $1.54 at expiry - losing 30% of the $2.19 spread cost. But you can make a profit of 174% if Silver closes at $50 or higher.

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Silver futures

 

Screenshot2011-04-22at083252.png

 

The blue bands running across this chart show magnitude of volume for each price level, so the further the blue bands are to the right, the higher the volume traded at that price level. It shows volume plotted in profile across price.

 

Using the volume shown at the bottom of the chart, since the start of the year it appears to have been generally constant and around the start of April has accelerated higher. It looks very bullish. Contrast this to the volume profile, it's trending lower as the price has accelerated from $37 until $46.

 

We see the same traits in SLV and SIVR.

 

SLV

SLV-1.png

 

SIVR

SIVR.png

 

 

This leads me to think that from $37 upwards, the activity in the market may have been from speculators, johnny come latelys seeking to capitalise on the $50 level. I'm a silver bull, but I would prefer to see these late comers shaken out of the market, and a more consistent price appreciation. Silver has gone up more than 250% in 8 months.

 

 

A comment I saw on Zerohedge;

 

by Putty

on Wed, 04/20/2011 - 09:38

#1187725

 

Saw PSLV go to almost 28% premium on the open this morning. That looks like $57 silver to me.

 

 

And finally;

 

 

 

"$1,000 OUNCE SILVER IS CONSERVATIVE" (Really?)

 

Only in a hyper-inflationary event.

 

There seems to be a detachment from reality here, it reminds me of the wild high estimates of oil during the spectacular 2008 rally.

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Clearly there will be some form of intermediate top soon, but as for longer term ...

 

It's going to $100s an ounce.

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Clearly there will be some form of intermediate top soon, but as for longer term ...

It's going to $100s an ounce.

You may well be right.

The big question is: Do you have the stomach to stay long through a nasty selloff?

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From expectedreturnsblog.com;

 

How Overextended is Silver?

 

 

With silver surpassing $46 dollars this morning, I believe it is time to take a step back and reevaluate this remarkable run. About a week ago, I wrote that silver's rise has come too far and too fast. I stated that I would lean bearish if silver made a spike move to new highs. Well since I issued that statement, silver has risen nearly 15% in a week. I am now getting very concerned; we are in the middle of the spike move I was talking about.

.................

 

silver.4.21.11.jpg

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From expectedreturnsblog.com;

How Overextended is Silver?

WISE WORDS ! / Excerpt:

Silver has risen 160% in 7 months. No matter how bullish you are on silver, you must admit that this move is a bit extreme. Silver is currently trading 70% above its 200-day moving average. If I saw a chart of silver without knowing what asset I was looking at, I would think it was a bubble. In fact, this rally in silver is more extreme than the rally in the Nasdaq in 2000 before the bubble burst. The Nasdaq “only” rose 100% in 7 months. This should make all investors in silver at least a little cautious.

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You may well be right.

The big question is: Do you have the stomach to stay long through a nasty selloff?

 

The advantage of physical is that I don't have a 'position', so to speak. It requires no courage or stomach to sit and look at a pile of silver coins. When the price drops I will purchase more. If it doesn't drop I will still buy more. The pile just sits there. I look at it.

 

Obviously, if I was trading via an ETF or with futures etc it might be harder to sit and watch the price fall.

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The advantage of physical is that I don't have a 'position', so to speak. It requires no courage or stomach to sit and look at a pile of silver coins. When the price drops I will purchase more. If it doesn't drop I will still buy more. The pile just sits there. I look at it.

 

Obviously, if I was trading via an ETF or with futures etc it might be harder to sit and watch the price fall.

I suppose the Hunts could have done the same had they not used leverage.

But others that bought in the spike of 1980, waited 21 years to reach breakeven. That's a long wait.

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This is what a short squeeze looks like. Prices go up real quick. I remember a few years ago a guy called the Silver Windbag described it as being like pushing a bottle filled with air under water. The deeper you push the bottle the faster it returns to the surface when you let go.

 

There's got to be some shorts howling at the moon about the silver price right now

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Screenshot2011-04-22at140614.png

 

I found this interesting chart in the comments section on a Zerohedge story along with the comment;

 

Typical log-periodic superexponetial growth precrash pattern (Sornette-Johansen) . But will it crash? If it will, its going to happen within few weeks:

 

The chart was originally posted on another forum by a guy in Latvia on 13th March.

 

It's following his script so far...

 

 

The ZH story is Futures Curves Gone Wild: Backwardation Or Chaostango?

 

Someone in the comments section responded to the Latvian's chart;

 

 

 

You are a ******* idiot. "Typical pre-crash pattern"??

 

With your gift of seeing the future, why aren't you the richest man alive? **** you.

 

 

That's quite an emotional response considering the chart shows silver more than doubling in price...eventually.

 

Is this the type of over-emotional response you might see near some form of top?

 

 

The Latvian also posted links to some rather in-depth PDF texts;

 

Critical Crashes

Anders Johansen and Didier Sornette

 

and

Financial "Anti-Bubbles": Log-Periodicity in Gold and Nikkei collapses

 

Looks like it could be interesting reading.

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image002+%25281%2529.gif

 

 

 

Sentiment is higher than it was in March 2008;

 

 

 

 

Silver futures 2008 - present

Screenshot2011-04-23at101813.png

 

 

 

Looking closer at March 2008, after the sharp rise in silver it corrected 22% within 4 days from the high. If it tags $48.70 and does something similar it would come back to $38.

 

 

 

Silver futures

Screenshot2011-04-23at102349.png

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"$1,000 OUNCE SILVER IS CONSERVATIVE" (Really?)

 

Only in a hyper-inflationary event.

 

There seems to be a detachment from reality here, it reminds me of the wild high estimates of oil during the spectacular 2008 rally.

 

 

Why only in hyperinflationary event? What is so good about US dollar that is not so with silver Ounce?

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The advantage of physical is that I don't have a 'position', so to speak. It requires no courage or stomach to sit and look at a pile of silver coins. When the price drops I will purchase more. If it doesn't drop I will still buy more. The pile just sits there. I look at it.

 

Obviously, if I was trading via an ETF or with futures etc it might be harder to sit and watch the price fall.

 

I was looking at some old receipts of silver philiharmonics....£8 including postage. But then why sell it for worthless US dollars?

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Why only in hyperinflationary event? What is so good about US dollar that is not so with silver Ounce?

 

$1000 ounce silver would only be a conservative figure in a hyper-inflationary event. If silver was $1000 what price do you think gold, oil and commodities would be at? We would surely have to be at some stage of hyper-inflation to get up to that number. At the moment it seems wildly optimistic, doesn't mean it can't happen at some point though.

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The advantage of physical is that I don't have a 'position', so to speak. It requires no courage or stomach to sit and look at a pile of silver coins. When the price drops I will purchase more. If it doesn't drop I will still buy more. The pile just sits there. I look at it.

 

Obviously, if I was trading via an ETF or with futures etc it might be harder to sit and watch the price fall.

 

+1

 

Although in my case I also "caress" a few coins in the palm of my hands whilst on t'interweb instead of looking at a pile!

 

 

 

 

 

EDIT - clarification

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$1000 ounce silver would only be a conservative figure in a hyper-inflationary event. If silver was $1000 what price do you think gold, oil and commodities would be at? We would surely have to be at some stage of hyper-inflation to get up to that number. At the moment it seems wildly optimistic, doesn't mean it can't happen at some point though.

 

If we are talking of a dollar hyperinflationary event then the price becomes meaningless and we should be looking at it's relative purchasing power. $1,000 oz silver means nothing with $100 big macs. From a UK perspective, $1000 oz silver could equate to £50 oz silver if it's only the dollar that's gone breasts up and the rate of exchange has adjusted accordingly.

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Here's a log chart of silver, which seems to make a lot more sense than using the linear chart for predicting resistance. It shows that currently resistance lies at around $54/$55.

 

I truly think this top guessing game is pointless though, as the only ones who will be trying to do it are those without silver looking for an entry point. Those who have bought silver over the last few years hold it very tightly as they realise the fundamental reasons for it going up, which are far from over. The best entry point was handed to everyone on a plate in October '08 by JPM, those that missed out are always going to be looking for tops. I find this amazing as I have been consistently bullish about silver on here for years, sometimes it appeared I was the only one. Now that silver is showing massive price increases the bears (without any silver) are looking for tops, you need to look at the fundamentals to realise why the silver price is going a lot higher over the next few years.

 

The other reason to be cautious is the JPM silver short, who knows when they will be forced to cover they can't carry the loses forever getting more and more into the red. When they are finally forced to start covering the price is going a lot higher as they are short something like a 1/4 of a years production.

 

I expect silver to be going through $100 over the next couple of years and will hold mine extremely tightly even if we get a temporary pullback.

 

20110423-kigf1psu4x2nxj9cqxmahsg7mf.jpg

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Here's a log chart of silver, which seems to make a lot more sense than using the linear chart for predicting resistance. It shows that currently resistance lies at around $54/$55.

 

Screenshot2011-04-23at140501.png

 

I typically use log charts, but turned log off for previous charts in this thread to illustrate what I think may be a developing parabolic move (ie unsustainable). The chart above is a log chart. The trendlines shown are ones that my platform has calculated using linear regression, taking the sustained rise from 25th August 2010 to 1st January 2011 as a base to calculate from. Trend channels calculated on a log chart always converge to some degree to take into account the change in perspective shown on a log chart. Based on linear regression and the recent upward trend, these point to $50 before the end of April. I am not saying that's the top however if the price trend gets even steeper then that will suggest a blow-off top, not necessarily the top though.

 

I truly think this top guessing game is pointless though, as the only ones who will be trying to do it are those without silver looking for an entry point.

 

I view it as being an intellectual challenge. In my futures trading there are many times I have bought close to the low of the day, or shorted near the high (trading NASDAQ futures), using my analysis.

 

Screenshot2011-04-18at193854.png

 

I purchased most of my silver on 16th September 2008.

 

Screenshot2011-04-23at141941.png

 

I have seen huge gains in my silver position and am examining the possibility here that there could be a parabolic blow off top developing. My personal preference is to hedge the possibility of a dramatic correction in silver, for relatively little cost I can cover a lot of downside risk.

 

 

The other reason to be cautious is the JPM silver short, who knows when they will be forced to cover

 

Could this huge move up in silver be caused, in part, by a large short position being covered?

 

When trading or investing I try to be as objective as possible with analysis, the more objective you are, the closer you get to the reality of a situation.

 

I should also make it quite clear I am not suggesting anyone sell silver here, or buy for that matter.

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The advantage of physical is that I don't have a 'position', so to speak. It requires no courage or stomach to sit and look at a pile of silver coins. When the price drops I will purchase more. If it doesn't drop I will still buy more. The pile just sits there. I look at it.

 

Obviously, if I was trading via an ETF or with futures etc it might be harder to sit and watch the price fall.

 

+1

it wasn't that long ago that i would have been happy that silver got back over $20, and now its almost $50.

 

a drop to $30 wouldn't bother me in the slightest.

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Do you have any evidence to show this short, and have you considered that this huge move up in silver may have been caused by a large short position being covered?

 

My objective when trading or investing is to be as objective as possible with analysis, the more objective you are, the better.

 

I should also make it quite clear I am not suggesting anyone sell silver here, or buy for that matter.

Thanks for your charts, you use a much better platform than me so I expect yours are more accurate. As I am not a trader I just use the netdania java app and have to manually draw the lines on log charts.

 

The evidence of JPM's silver short is not available to be proven or not. I would love to find evidence to prove or disprove this, but I find it hard not to believe that there isn't anything in it when you see how cheap silver has been for years in massive supply deficit. Rather than try to find non existent evidence of silver shorts I prefer to base my buying and holding of silver on the simple supply & demand imbalance. For years there has been demand exceeding supply and I don't see that changing in a hurry, in fact I expect it to get more imbalanced as demand increases and supply diminishes. Or can you show me something to say that I am wrong and that actually there is a massive over supply of silver as Tom O'brien was saying last year when silver was below $30.

 

The banking system has proven repeatedly that it is full of fraud and corruption, so how can any reported figures be relied on? Jason Hommel & Rob Kirby have been trying to make sense of the JPM shorts, you can see the figures that they have come up with via search on google, but as I stated above I prefer to look at the fundamentals.

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Or can you show me something to say that I am wrong and that actually there is a massive over supply of silver as Tom O'brien was saying last year when silver was below $30.

 

 

I don't think you are wrong at all Pix, in fact of all the posters I read you make a lot of sense and you have made some very good calls before. I just think a correction within this bull market is coming due at some point, probably sooner rather than later. I'm not selling my physical as effectively I would then be going long Sterling, and that doesn't make any sense.

 

The sentiment chart does suggest there is likely to be an over supply of buyers gravitating to the silver market right now, although I am fully aware of the tiny percentage of funds invested in gold and silver, in proportion to other asset classes.

 

I've no idea where Tom O'Brien might have gotten the idea that there was a massive over supply of silver.

 

It may not happen but people should not be surprised if it spikes higher, then consolidates for a long time afterwards, as silver did following the $21 high in March 2008. Although I recognise the market is a different animal right now, I prefer to hedge against that potential scenario. I can buy puts relatively cheaply right now, if silver corrects sharply then I can use the gains to buy more, potentially, or put them to some other use.

 

That said after all I've posted here silver will probably rocket to $75 or something crazy like that! The market does like to surprise us all sometimes doesn't it.

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