Tuesday, February 15, 2011

An Imminent Silver Explosion? And Some More On Housing...

With the ever-shrinking stockpile of physical silver, as evidenced by the unusual degree of backwardation in the price structure of silver futures, the noose is clearly tightening around the necks of the bullion bank(s), which are short an absurd amount of silver.  I haven't seen anyone write about this yet, so maybe my thinking is out of whack, but there also seems to be another inverse head-and-shoulders forming in the daily silver chart.  Here see for yourself:

(click on chart to enlarge)

It's there - see it?  The last inverse HnS formation was formed roughly from late 2009 to April 2010. It then consolidated sideways until August 2010, when it exploded up to $30 - A 67% move. It would appear that this inverse HnS is forming around the $30 level.  We have no way of knowing how long it will take to either fail or resolve with another big move higher.  However, given that the basic supply/demand fundamentals, plus the underlying monetary fundamentals which are fueling gold and silver, are even stronger now than during all of 2010, I am placing my bet on a much higher price of silver sometime during 2011.

I have to say that I am quite excited by the reports, if they are true, about some big silver mining companies hedging out some of their production. On one hand, it's not an imprudent business decision to lock-in some profits and create some predicability in the revenue stream.  On the other hand, just like Barrick and Anglo-Ashanti, these silver mining companies will likely lose a lot of money on their hedges.  And this will create a massive short-cover bid in the future that will drive the price of silver even higher.

Most of you have likely already seen this article about some Asian buyers who are taking a big position in SLV as a means of accumulating a lot of silver (with SLV you can convert your shares if you own, a minimum very large amount, into the delivery of physical silver held by the trust, assuming the silver is not leased out or otherwise encumbered), but here's the link in case you have not had a chance to read this:  LINK

Now for a quick update on housing.  There was an article on Sunday in the New York Times which discussed how the housing crash is starting to affect cities that were previously thought to be immune from big price declines.  Ya know, I can't tell you how many people with whom I've chatted over the past couple of years always have a reason why their block/neighborhood/city/State will not be hit by the housing crisis. It's usually 3/4's denial and 1/4 stupidity.  To be sure, some areas will decline less than others - after all, there are factors which foster "relative" value - but this still has long way to go and a lot lower to fall - everywhere.  My favorite discussion is when someone in Denver tells me their 'hood really hasn't lost value.  And then I have to ask them if they knew that Denver is ranked 10th in terms foreclosures.  Of course, they have no idea.  Then I have to suggest they find a new realtor who will tell the truth or have them go look at some actual sales in their 'hood.  Anyway, here's the article from Sunday Times (the NYT requires an account so I copied the article and pdf'd it): 

HousingNYT -

Finally, after the Nat'l Assoc of Homebuilder's sentiment index was released today, I happened to catch this article about the poor outlook for new home sales:  Homebuilders have yet to see a turnaround in the housing market after the worst year for new-home sales in a half-century. Here's the LINK

I hate to keep belaboring the point about housing, but a lot of people who are not underwater on their mortgage and can still make their payments think that the market will stabilize and the worst is over.  Sorry, this is going to get a lot worse than any of us can imagine...And I insist on continuing to post all of the evidence that is available in the published data in an attempt to proliferate the truth...


  1. Thanks for posting that. I saw it earlier but thought my post tonight was too long for include it with some commentary. It's a good read.

  2. I'm a little reluctant to load up on silver because I fear a big market correction and deflation a la 2007 on the horizon. Is my fear justified? Long term the central banks are hell bent on inflation, so owning silver is a great idea, I just don't want to get burned in the short term. Advice?

  3. Hey Dave, just curious on your thoughts on SDRG these days. Are you still bullish? Keep up the good work!

  4. RE: SDRG - I wrote in the comment section of a blog post like in mid-December that we had determined Marc Hazout to be a fraud. You can probably use the search function above to find it. SDRG was the worst investnig mistake I've made in my life and somewhat affected my emotional state over the holidays...

    RE: silver - don't take this the wrong way, but as long as the majority of the people out there feel the way you do, i am confident that silver/gold will be going much much higher. it's when the last of the disbelievers become believers and look to pile in that it's time to sell.

    Read this:

    and read several of the other recent posts.