Friday, September 3, 2010

Why Silver Can Explode to $133

The 1980 inflation-adjusted high of silver is $133.61 based on a $50.55 high price and the inflation calculator from the Bureau of Labor Statistics (based on CPI).  I would consider this to be a conservative estimate since the CPI is manipulated downwards by the government to cheap us on social security payouts.  Granted, the all time high price was extreme as it was driven by the Hunt brothers and their friends attempting to corner the silver market.  As is well documented, rule changes by the COMEX/CBOT/CFTC and Paul Volker raising interest rates to curb inflation wiped out the Hunts and crushed the silver price. [1]  Some speculate that the Hunts' punative bailout plan administered under Volker that eventually bankrupted them is the result of the Hunts being on the wrong side of the "Eastern Establishment", e.g. the money power controlled by the Rockefeller family ("arch enemies" of the Hunts per [1]). [2]

I think a similar run-up is possible today due to silver becoming more scarce and the huge short positions against it should fuel a big up move.  JP Morgan is known to have a huge short position on silver and central banks have been known to collude to suppress gold and silver prices for the past 30 years, which has caused an abnormal depletion of the silver supply. [3]  With China encouraging their citizens to buy silver and gold and countries such as India and Russia buying up bullion, there is strong underlying demand for precious metals.

Also, the Fed admittedly is already starting to monetize our debt and will proceed with its QE2 (quantitative easting 2.0) program and investors are seen buying small pullbacks in gold and silver.  It is expected by many that the Fed's policy will necessarily lead to hyper-inflation and that investors will rush in to precious metals to protect their capital.

Traders are looking at approximately $21/ounce on spot silver as a key level for shorts to hold:

1.  "H.L. Hunt's Boys and the Circle K Cowboys" by Larry LaBorde
3.  "Commodities: Hoarding Versus Shorting" by Jeff Nielson