The Future Of The Silver Recovery

March 20, 2014

Using past data for clues to future prices should only be one of the tools that investors/speculators use when deciding whether or not to invest in a given asset or asset class. Many technicians or analysts look back to prior price performance as a hint for what is coming next, and yet it is important not to get caught looking in the rear-view mirror. It is always the case that things change and that the reality around you is larger than your ability to process or understand it.

At the moment the biggest point to keep in mind is that the equity market has disconnected from a weak global economy- by any definition of that economy. Many equity bulls maintain that the central banks of the world want equity prices to be high, as one way to try to encourage overall confidence and to get animal spirits working again in the world of high finance.

However, you also need to remember that regardless of your view of central bankers, they do understand that at times their own credibility is called into question—and they do, believe it or not, at least pay lip service to the idea that they need to tighten so as to prevent damaging bubbles from getting out of control. Don’t laugh too loudly at this, given the abysmal performance of central bankers at managing prior bubbles. But it is the case that—whether or not they succeed at smoothing out the business cycle—central bankers are always looking at a time to tighten, always looking at ways to pull back on the reins of bulls getting too far ahead of themselves.

I believe that with the announcement this morning from Janet Yellen that tapering is continuing, coupled with vague language regarding possible interest rate increases, that you had better learn to respect the likelihood of a coming stock market correction—even as I can’t tell you exactly when it is going to come. But as many celebrate the fifth anniversary of this bull market in equities, understand that this bull is nearing its end, whether or not you believe that conventional equities are a good place to be in the longer term.

Against the backdrop of a looming correction in the stock market, for those out there who have speculative positions in the silver market, or who have a larger than normal exposure to this space (i.e greater than 20%) one clue as to whether or not we are still in a secular bull market in silver will come from the performance of silver as the stock market starts to turn south. Many have spoken of silver as a non-correlated asset, or as attracting safe haven status, and if that is true, we should see silver catch a powerful bid when the next stock market downturn occurs.

However, even if silver continues its lackluster performance in the midst of a stock correction (the way that it did in 1987 and 1991) this does not mean that you can’t make money with the white metal. Even during the last secular bear market in silver, from 1982 to 2003, there were ample opportunities to make money, once silver established a cyclical bottom. As I have mentioned before, after having declined roughly 63% from 2011 to 2013, the bear market we have just experienced in silver is among the worst excepting 1980-1982. So it seems to me that there is a very good chance that silver has put in a meaningful bottom- at least cyclically. Here are the last three silver rallies within the context of a secular bear market in silver:

1982-1983: + 200%

1986-1987: + 65%

1992-1997: + 85%

Remember, these rallies in the price of silver occurred within the context of a secular bear market, meaning the price of silver eventually went on to make a new low (or in the case of the late 1990s to revisit its earlier lows from the earlier part of that decade.)

Whether or not silver performs as it “should”—meaning providing portfolio insurance as conventional stocks decline—from where I sit there is still plenty of upside in silver over the next few years. As I write, we are barely 15% off of the bottom established in June 2013 around 18.30. If we take the three examples I cited above, from 1983, 1987 and 1997, silver should not make another cyclical peak until it reaches either 30 dollars, 34 dollars, or 54 dollars, respectively.  As you should know, we are nowhere nears those prices as of this writing.

However, I suspect that we are still in a secular bull market in silver, although one that is trying its best- as secular bull markets do—to throw as many people off its back as possible. My guess, as I have also written before, is that silver will slowly build a base through 2014 and then begin to head strongly higher into 2016/2017, where I do expect silver to make all-time highs.

There was no economic recovery for most people around the world, interest rates cannot and will not be raised significantly until meaningful inflation arrives, and the plans being laid for continued confiscation (or bank bail-ins) of savers’ property demonstrate the fundamental bankruptcy of most western nations. Don’t interpret this to mean that these nations will ever declare bankruptcy, but rather a continued war on savers will continue and will hardly inspire widespread confidence in central planners or their banker allies. People will not shun perceived or possible safe-havens like gold and silver is this environment. There will be continued efforts by system functionaries to ignore economic reality for self-serving purposes, but I believe the social mood of a generation that has seen the worst excesses of modern finance will recognize the importance of owning assets that stand outside the system—the two most important of these being gold and silver.


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Silver has the highest electrical conductivity and heat of all metals.

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