I have forecast that at some point the physical silver market will dominate the paper silver market. The question I ask now is, "Are we there yet?"
In my Alert to my subscribers on March 3, 2008, I wrote: "The market is trading in a short squeeze fashion, and I think it best not to chase the market here, especially if you use leverage. The shorts must be sweating here and maybe, just maybe, they are going to feel much more pain during the next several trading sessions."
In my view, silver could keep moving up for several more trading days, but "normally," buying pressure exhausts at some point. Please pay attention to this update, because we always must be aware of the fact that at some point, someone may call the silver bluff. Meaning someone, some entity, some sovereign wealth fund, stands for delivery of physical silver.
If, or more likely, when, this takes place, the whole dynamic of the silver market will change from being a paper-based derivative market (Comex) to one based upon the true physical demand for silver. I have predicted this to take place "at some point," but do not think we are there yet.
I did my Silver Bullion Dealer survey, which I have not done for some time. I personally phone most of the major physical dealers in the U.S. and ask how the orders for silver bars, rounds, and bags are doing. What I found was that most dealers reported that February was the biggest month they have had for physical silver in a very long time; additionally it was almost all buying, very few sellers.
We even spoke to a few dealers who were having trouble filling large orders. I want to remain objective here. Silver junk bags are selling BELOW melt, and from my long experience, this means that we are getting near a high.
Note: I had a few readers tell me this is an invalid indicator, and it seems it is not as reliable as it once was, but it still might offer some signs. For example, if junk bags go to a premium, that is a clear indication the market will become even tighter than it is presently.
On March 13, 2008, I stated that we will get a correction. In fact, one useful tool we have is the number of inquiries asking if or when a correction will take place. The more inquiries, the closer we get. Right now all surprises will be to the upside! But as reported in my newsletter,The Morgan Report, at some point the buying pressure exhausts, like a ball thrown straight up into the air eventually stops going up.
Silver has entered into another parabolic rise, just like it has in the past. Because silver is becoming much more sought after as an investment, these moves go further before topping out. Where will the new top be made? It is possible it has been set at over $21 in the overseas market already.
Whatever the high turns out to be, the correction probably will be just as dramatic as the previous ones. Watch the $19.25 level carefully; if we get a close below that point in the spot (cash market) and it stays for three days, there is a high probability this rally is over.
After my initial update to our paid subscribers, tons of information poured out on the Internet about physical silver shortages all over the world! The controversy continues, but it is always best to remember paper silver and real silver do not equal.
In my next issue of The Morgan Report I will be covering the silver bullion market and explaining how much bullion is left and where it exists.
April 3, 2008
Mr. Morgan has followed the silver market daily for over thirty years. Much of this Web site, www.silver-investor.com, is devoted to education about the precious metals.