by Kerry Lutz, Financial Survival Network:
Silver investors have experienced enough motion sickness for one lifetime. Silver began its historic run near $32 an ounce, ripped through the supposedly impenetrable $50 barrier and exploded to an intraday high above $121 in January. In percentage terms, silver nearly quadrupled while most investors were still waiting for confirmation that the bull market had begun.
Then the floor disappeared. In just three trading days, silver crashed approximately 41 percent. The selling continued until it reached $54.74 in July—a decline of roughly 55 percent from the January peak. Anyone who bought near the top watched half of his investment evaporate before he could finish ordering the monster box.
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That sounds like the end of a speculative bubble. According to noted precious-metals analyst David Erfle, it may be something entirely different. He believes the silver market is following a remarkably similar path to what happened during the financial crisis of 2008—and that the violent decline could be setting up the biggest move in silver’s history.
We Have Seen This Movie Before
In March 2008, silver traded above $20 an ounce. The metal had been climbing for years, the commodity bull market was roaring and investors believed precious metals had finally entered the mainstream.
Then Lehman Brothers collapsed, credit markets froze and investors began selling anything that was not nailed down. Silver was supposedly a safe haven, but during a liquidity crisis investors do not sell what they want to sell.
They sell whatever they can sell. Silver collapsed from $20.92 to $8.88. That was a decline of nearly 58 percent. The fundamentals had not disappeared. The silver had not vanished. Industrial demand had not permanently ended. The paper market simply experienced a massive liquidation as leveraged investors were forced to raise cash.
The decline from $121.58 to $54.74 was approximately 55 percent. The similarity is difficult to ignore. In both cases, silver enjoyed an enormous advance, attracted speculative capital and then suffered a liquidation so brutal that it convinced nearly everyone the bull market was finished. The people who bought the top felt betrayed. The people who missed the rally felt vindicated.
Both groups were looking backward.
What Happened After 2008
Silver did not remain below $9 for long. By the end of 2009, it had climbed back near $17. It passed $30 during 2010 and eventually reached $49.21 in April 2011. From its 2008 low, silver appreciated more than 450 percent in approximately two and a half years.
The real silver move did not occur before the 2008 crash. It occurred after it. The crash eliminated leverage, shattered confidence and transferred metal and mining shares from weak hands to strong ones. When investment demand returned, there were fewer sellers standing in the way.
That is the parallel Erfle sees today. If silver merely repeated its percentage gain from the 2008 bottom to the 2011 peak, a move of approximately 450 percent from $54.74 would put the metal above $300 an ounce.
Suddenly, Erfle’s seemingly outrageous $300 silver target does not look quite so outrageous.
The Difference This Time
History never repeats perfectly, but the present silver market may be more fundamentally powerful than the one that existed in 2008. Silver is no longer primarily a monetary metal, jewelry metal or photography commodity. It has become indispensable to solar panels, electric vehicles, electronics, medical equipment, advanced weapons systems and the enormous data-center buildout required by artificial intelligence.
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