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| BEWARE OF A RULE CHANGE FOR SILVER
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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
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as well as various junior resource stocks that I believe offer
great price appreciation potential.
Please visit my website www.financialinsights.org
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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
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