Silver vs. Royal Wedding - Which One's the Bubble?

Includes: GLD, SLV, WPM
by: Galt's Gulch

A lot of people are worried now about “the great silver bubble” – if you are one of these, relax – it’s years away. If we compare silver against the actual “news bubble” of the royal wedding, we can see just how undervalued silver is.

(Click charts to expand)

By using Google (NASDAQ:GOOG) Trends, we can see that on April 29th, the search volume for the “royal wedding” was 426X the “normal search level” of “1” that for the 30 days ending May 5th. “Buy silver” ranked a “0.” But we can’t compare a 0 – we need another time frame where the silver search is a usable number, so let’s look at the 30 day chart.

If we look at the following chart, we can see that search volumes as of May 1st were at a ratio of about 154 to 1 (Google trends data can be exported to show the actual numbers instead of just the charts) – remember though that with the possibility of rounding, the reported “0.01” could be as low as “0.005” – which would imply 308 to 1.

Returning to the first chart, we can see that the ratio of “royal wedding” searches on April 29th compared with the “royal wedding” volume on May 1st is around 6.3-6.4 to 1. In other words, using a conservative estimate, we can estimate the “royal wedding” searches on April 29th to be 975 (154*6.33) to 1 compared with “buy silver.” For round numbers’ sake, we’ll call it 1000:1. Can silver be in a bubble when the royal wedding news was 1000x larger AND silver has never been as popular? By the way, even if we take in media reports that the wedding brought in over 101 million views on YouTube on the big day and assume that all of these were different people, that implies that a whopping 100K people were looking into silver that day. For comparison, the US alone has over 300 million - if those 100K were all Americans (we're not even including Canadians, Aussies, NZ'ers, the UK)...that's about 0.03% of the US population. I thought a bubble usually involved most of the population, but the experts say silver is a bubble, so they must be right...right?

As for selling silver – I think this chart says it all. People sold out on one day alone – and that was it. Selling silver was a one day bubble.

So what does this all mean? I think it’s fairly clear that any talk of silver being in a bubble is totally misinformed and overblown. It is clearly fair to say that it was overbought by weak hands. However, it is also fair to say that real silver sales did spike dramatically, so the fall in price is not fully “artificial” but actually has some basis in reality. However, barring another spike in silver sales, it’s hard to see much downside from here as buyers continue to outstrip sellers by a wide margin. To be even more bullish, there is an important point to be made - logically, people who are on Google searching about how to buy clearly haven't bought before - after all, if you know how to buy silver, you don't need to search for it. So in other words, these charts represent new entrants into the silver marketplace - meaning that the total interest in silver is both growing and accelerating. Unless naysayers can show how total silver supply and drops in industrial demand will overshadow this clear and real growth, the price of silver remains in the uptrend.

Disclosure: I am short GLD, ZSL. I have put options on both ZSL and GLD as well as physical silver.