The Silver Trade Is Taking Off

Includes: AGQ, SLV
by: Glen Bradford

There you have it folks: new all-time highs for Silver:

Silver is now hitting all-time highs instead of 52-week highs. At this point, the rumor-mongering and fear-mongering should start heating up. You are going to hear rumors like the SLV ETF is a fraud. These are rumors. To the best of my research ability, SLV is real and actually has the amount of silver that they say they have.

In fact, over the last several years, the ETFs for silver have taken a lot more silver deposits than withdrawals as evidenced by the chart below:

A look back in time - 1980.
So, what we have is very similar to back when the Hunt Brothers cornered the Silver market, except this time is a tad different. Instead of just a small group of people out there trying to protect themselves from the inflation caused by money printing and higher gas prices, there is a conglomerate of people trying to do so. What people don't know is that Silver prices during the bubble never really traded as high as they are today. For the most part, a few trades went through --- and if you were crazy, you traded this high in the futures market --- but what I am looking forward to is new inflation-adjusted highs, not just new nominal highs. My inflation adjusted all time high is $138. Looking back, this bubble has room to run.

What's the net result of all of this?
You get people buying out of fear. Here's an example. The guy in front of me at the local gold/silver dealer was so concerned that he wouldn't be able to buy his silver that he asked them to hold it while he ran to the bank to withdraw money to pay for it. Good thing too, because I bought all the rest. My take is that recently we are seeing lots of people start to grow concerned about inflation. Silver is not even close to crowded in terms of the size of the silver market ($75B) compared to the financial markets and global GDP.

Silver Bubble or Trade of the Decade?
At the current point in time, I think that we are seeing what was a great fundamental trade start to take off and get bubbly. I'm all for it. Inflation is going to start scaring everyone into buying gold and silver. That said, all things being equal, I still think that overall we are in a deflationary environment if the global monetary powers that be were to simply stop the expansionary monetary policies. I think that they'll let off the gas, China will start running into sustainability issues, and base metal commodity prices will likely flex back down when that happens. That said, at that point in time, I strongly agree with the opinions of Marc Faber and George Soros. That is to say, that there will be more printing. They both think that the dollar is losing its reserve status and we will be monetizing the deficit.

Disclosure: I am long SLV, AGQ.