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Silver recently broke above the important
$6.00 level that should have at a minimum presented some
important resistance. The impressive sustained buying frenzy
that fired its advance quickly not only catapulted it quickly
through that point, but has now placed it in a position
to attack far higher price levels. When I began working
on this essay several days ago I thought that it would at
least require a month or longer to attain the $7.50 price
objective. This was the height to which silver earlier soared
when Warren Buffet announced that he had purchased a substantial
amount of the white metal in early 1998. Now that $7.50
has been surmounted, and barring a correction which should
normally attend such an event, the next area of important
resistance should be $8.00 followed by my intermediate price
target of $10.00. Given the abruptness of silver’s
current breathtaking advance, it is likely that we will
not have long to wait before these targets are approached.
One issue that greatly impresses me is the effect of a recent
unified letter campaign to various government officials.
These outlined the abuses that have allegedly influenced
the free trading silver market. It is believed that a group
of bullion banks, brokerage firms and commercial interests
have acted for years to suppress the price of silver. Ted
Butler who has long championed silver initiated the campaign.
He was responsible for the outpouring of thousands of individual
letters to important officials such as Elliot Spitzer, New
York’s Attorney General. Mr. Butler’s coaxing,
along with that of the Gold Anti-Trust Action Committee
(GATA.org) was instrumental in a flurry of letters that
appear to have forced the authorities to at minimum look
into these allegations. It is amazing that shortly after
the campaign was initiated, silver appeared to become freed
from the shackles that had prevented its price appreciation
for a number of years. The timing was that precise.
If the allegations are true, which I believe is likely,
those who have worked to maintain silver at an artificially
low price will now be forced to stand aside and allow the
market to set its own course. They will do this for fear
of government sanctions against their indefensible actions.
To me this is truly a great win for “the little guy”,
the man in the street, all of us! Further, it proves that
a number of people working together in search for truth
and justice can actually make a difference! My hat is off
to Ted Butler and GATA.
It is amazing how powerful the Internet can be if utilized
properly. In this instance the availability of instantaneous
communications allowed a vast number of individuals from
varying countries and from very different walks of life,
to successfully connect for a like-minded goal.
If indeed silver has broken away from the restraints that
have impeded its advance for the past several years, it
is now free to quickly make up for lost time. This will
allow it to rise to the $8.00 area, which appears to me
to be the white metal’s present minimum equilibrium
level. However, there are other considerations that must
be taken into account in order to determine the extent of
silver’s remaining thrust if the suppressing forces
have indeed been quieted.
I have been long waiting for the build up of silver’s
fundamentals to propel it sharply higher. Silver has been
in a supply deficit for nearly 15 years. During this time
the vast majority of available above ground supplies have
been consumed.. Further, the various government stockpiles
have been all but exhausted. During the early 1970's, the
U.S. government maintained a silver inventory of about 3
billion ounces. This has long since been depleted. The U.S.
now finds itself in a position where it must compete in
the marketplace to acquire needed silver supplies for the
production of their various silver collector coins.
The enormous commodity short position against silver has
been at an unsustainable level for quite some time. It appeared
obvious that the shorts would eventually be forced to cover
their positions. Further, given the amount of silver that
they owed, a massive short squeeze seemed the likely outcome.
The only question has always been one of timing! Now, we
appear to be at the thresh-hold of the silver shorts long-awaited
day of reckoning.
Given the fact that the above events appear to be coming
to a head, the ultimate outcome will be a significant spike
in the silver price. This will be needed to attract the
sale of a sufficient quantity of silver from the “strong
hands”, in order to clear the market. I believe that
this process has now been set into motion! When the smoke
settles, the only question is the needed dollar price that
will effect the balance of the white metal’s supply
and demand.
Given the above, I believe that within the foreseeable future
we will be faced with a silver price well in excess of $10.00
an ounce. It is impossible to presently predict whether
silver will rocket to $12.00, $15.00, or even $20.00 an
ounce because there are too many unknowns. Further, the
enormous short position has not been built up by an unwitting
public. It has been undertaken by bullion banks, important
brokerage firms as well as major commercial interests. In
effect, by some of the most powerful, financially sound
and shrewdest minds in the financial world. They will not
easily go down fighting! There will likely be sharp corrections
as negative information regarding silver enters the market.
However, in the end, I believe that a year from now we will
all look back at today’s silver price and wish we
had owned more!
By now you see that I have not yet addressed the title of
this discussion. I recognize this, but I wanted to first
lay some groundwork and give you my perception of the condition
and future of the silver market. However, before I properly
address my topic, I believe that a recap of history is also
important.
During the silver blow-off period which occurred between
August, 1979 and January, 1980, silver exploded in price
from about $9.00 to $52.50 an ounce. This was the time when
the famous Hunt brothers achieved a corner on the silver
market. They effectively controlled the majority of the
world’s available above ground silver supplies. Earlier,
they had cautiously and secretively acquired an enormous
cache of the white metal. Once having attained their goal
they began to bid up silver’s price.
Silver had already begun a secular Bull Market prior to
the initiation of the Hunt brothers short squeeze. It had
been trading in the $4.00 to $5.00 range for a few years
prior to its break-out above the $5.00 resistance level
in early 1978. It then worked its way higher into the summer
of 1979. During the incredible short squeeze that ensued
the white metal experienced bouts of multi-up-limit days.
When the shorts finally panicked in December, 1979, silver
was trading at about $18.00. Subsequently, the white metal
moved limit-up for a number of consecutive days. When silver
approached $50.00 an ounce most of the shorts were already
bankrupt on paper. They were locked in and were unable to
extricate themselves from their positions as silver rose
day after day without trading.
From various rumors that I read at the time, some of the
major shorts were allegedly either officials or had close
ties with members of the Commodities Futures Trading Commission
(CFTC). If this was true these individuals had the power
to change the rules that governed silver futures trading
in the United States. When silver vaulted above $50.00 an
ounce, the CFTC announced that only liquidating orders would
be allowed to be executed on the Exchange.
This forced the longs to sell as the shorts neither desired
to cover their positions nor had the capacity to do so.
Thus, within a day or so, silver began to collapse in price
and went limit down day after day until the first shorts
began to cover their positions and bought back the silver
that they owed. As I recall, this did not occur until silver
had returned to the mid-$30 range. When this happened numerous
longs, who had earlier pegged the market correctly and had
sizeable profits, were decimated because they had no opportunity
to exit their trades until silver was trading about fifteen
dollars lower.
I am submitting this information so that those interested
in the fate of silver will also have an understanding of
the past. I am not presenting this to frighten you but to
prepare you for the possible replay of an earlier, real
event. Further, I do not believe that we will face such
an occurrence in the near term! I say this because it will
likely transpire during the latter stages of silver’s
Bull Market, which I do not foresee for quite some time.
However, if silver ultimately achieves a substantial price
target that I believe is likely in store for it, many powerful
individuals and companies who are short the metal will be
severely damaged. And, some of them may be in a position
to effect changes in order to extricate themselves from
their mistakes.
If this occurs, I hope that readers will not suffer a similar
fate as did those who were right about silver at $52.50
an ounce in 1980, but severely suffered due to a damaging
rule change. Instead, I hope that you carefully monitor
all of your silver related investments and do not expose
yourself as did those who were financially destroyed at
the whim of those who may have benefited from their destruction.
My advise to both benefit from the emerging great silver
Bull Market and not expose yourself to the potential of
damaging regulation changes, is to buy silver, but buy the
physical! I am confident that if you choose this course
of action, at the end of the day you will have both slept
well and will have prospered.
The above was excerpted from the April 2004 issue of Financial
Insights © March 21, 2004
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I publish Financial Insights. It is a monthly
newsletter in which I discuss gold, the financial markets,
as well as various junior resource stocks that I believe
offer great price appreciation potential.
Please visit my website www.financialinsights.org
where you will be able to view previous issues of Financial
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You will also be able to learn about me and about a special
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CAVEAT
I expect to have positions in many of the stocks
that I discuss in these letters, and I will always disclose
them to you. In essence, I will be putting my money where
my mouth is! However, if this troubles you please avoid
those that I own! I will attempt wherever possible, to offer
stocks that I believe will allow my subscribers to participate
without unduly affecting the stock price. It is my desire
for my subscribers to purchase their stock as cheaply as
possible. I would also suggest to beginning purchasers of
these stocks, the following: always place limit orders when
making purchases. If you don't, you run the risk of paying
too much because you may inadvertently and unnecessarily
raise the price. It may take a little patience, but in the
long run you will save yourself a significant sum of money.
In order to have a chance for success in this market, you
must spread your risk among several companies. To that end,
you should divide your available risk money into equal increments.
These are all speculations! Never invest any money in these
stocks that you could not afford to lose all of.
Please call the companies regularly.
They are controlling your investments
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FINANCIAL INSIGHTS is written and published
by Dr. Richard Appel and is made available for informational
purposes only. Dr. Appel pledges to disclose if he directly
or indirectly has a position in any of the securities mentioned.
He will make every effort to obtain information from sources
believed to be reliable, but its accuracy and completeness
cannot be guaranteed. Dr. Appel encourages your letters
and emails, but cannot respond personally. Be assured that
all letters will be read and considered for response in
future letters. It is in your best interest to contact any
company in which you consider investing, regarding their
financial statements and corporate information. Further,
you should thoroughly research and consult with a professional
investment advisor before making any equity investments.
Use of any information contained herein is at the risk of
the reader without responsibility on our part. Past performance
does not guarantee future results. Dr. Appel does not purport
to offer personalized investment advice and is not a registered
investment advisor. The information herein may contain forward-looking
information within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. In accordance with the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995, the
statements contained herein that look forward in time, which
include everything other than historical information, involve
risks and uncertainties that may affect the company’s
actual results of operations. © 2004 by Dr. Richard
S. Appel. All rights are reserved. Parts of the above may
be reproduced in context, for inclusion in other publications
if the publisher's name and address are also included for
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