Silver: Bubble Bubble, boil and trouble

OK, the notion that Silver is in a late bubble stage has hit the mainstream.

On “Fast Money” they were talking about the Silver Bubble and the relative volume in silver vs the SPY and the 2 x Silver Short of ZSL. When it starts to hit the “news flow” it’s pretty much a “done deal”. Maybe a few more days left, but we’re not talking months here.

OK, anyone else?

A “Bing!” search of “Silver bubble” gave:

1-10 of 19,800,000 results

But many of those 19 Million results were about the last Silver Bubble when the Hunt Brothers were involved.

The top listings were:

How to Trade Silver if a Bubble Forms

Apr 26, 2011 · This essay will attempt to address the question of whether or not silver prices are in a bubble, or may be turning into a bubble and if so what trading ……

The silver bubble may burn many a hand

The Silver market is in a bubble stage right now. No one really knows how long this will last, whether Silver goes up another $5, 10, 20 doesn`t really matter for …

Investors: Beware of Another Bubble in Silver Prices – Seeking Alpha

Apr 26, 2011 · I know that most precious metal bulls would strongly disagree that silver is in a bubble right now, but one quick glance at a 35-year chart of the metal paints …

News: silver bubble

Silver Bubbles
The Silver market is in a bubble stage right now. No one really knows how long this will last, whether Silver goes up another $5, 10, 20 doesn`t really matter…Town Hall· 21 hours ago
Silver dream run raises fears of bubbleIndian Express

Silver Rally No Bubble as Price Will Top Record, Coeur SaysBusinessWeek

Gold & Silver Bubble? Data Suggest Otherwise …18 hours ago

Apr 27, 2011 · Evidence shows that speculation in gold and silver remains muted as seen in the COT reports and the total gold and silver ETF holdings – neither of which …–Silver-Bubble-ETF-COT-Data-Suggest…

Jim Rogers Blog: Gold And Silver Will Be A Bubble …11 hours ago

Apr 28, 2011 · I remember when gold went parabolic in 1980; I shorted it in 1980. It eventually collapsed. Gold and silver will be a bubble some day as will all commodities ……

Watch Out for the Silver Bubble – Seeking Alpha

I get an alarming number of questions and comments about precious metals, especially silver. I can remember the same level of interest in oil in 2008, or real estate in …

Asia Commodity Day Ahead: Silver Rally No Bubble …19 minutes ago

Apr 28, 2011 · The following are the top stories on metals, agriculture and shipping. ECONOMIC EVENTS, AGRICULTURE REPORTS: Forecast Prior Time (N.Y.) Employment Cost ……

Is There a Silver Bubble? How High Can Prices Go?

Apr 26, 2011 · There has been much talk lately about the price of gold, and how it has been reaching historic levels. Recently, it has closed at over $1,500 per ounce, which

How to detect a silver bubble |
By Matt Swayne · Difficulty: Moderate

Like the sudden rise in the price of gold and other precious metal investments, the value of silver soared rapidly in 2010. Some investors think the price has …

The Bubble That Is Silver (Y2K=QE2)1 day ago

History shows us that each bubble needs a tragic muse. The Nasdaq Bubble had both the allure and fear of a new millennium. Y2K was on one hand a software and …

So some other folks are starting to notice too.

Has an interesting description. It does a compare of the Nasdaq and Silver from the Nasdaq Tech bubble:

What if someone had come to you at Nasdaq 3900 in late 1999 and told you that the Nasdaq was going to decline 80% over the next few years? Would you have gotten out after such a great run or would you have continued pouring money into an environment that surely felt “different this time”? What if I told you your upside was capped at 30% and your potential downside was 80% over the course of the next 36 months? Would you take that bet? This might be the exact situation we are looking at with the price of silver today.

If you study the Nasdaq bust and the prior 6 year rally in silver prices you will see some remarkable similarities. After settling at around $7.50 in 2005 silver prices went on a 420% tear to their current price over $39. In 1994 the Nasdaq Composite settled around 750 before prices went on a 6 year 520% tear to their all-time high of 5132. The 3900 level in late 1999 was the equivalent of today’s $39 price in silver. It was a full 30% shy of the top, however, a seller at that level in 1999 avoided a 72% decline in the coming years.

My take on it all? As I said in the first “it’s a bubble” posting, it could easily double. It can also be cut by 80% and then be cut in half again in one day. It’s happened before when the last silver bubble burst. This is a very volatile metal. It will be even more volatile now, since so much is held in ETFs that can be forced to sell with one mouse click or just one down day clearing the stop loss orders and causing a cascade failure.

Some Background Data

On Bigcharts, you can choose a “custom” time frame. Then select “volume” as one of the indicators. Now you can pick up todays volume vs some other date. I chose a one week period about one year ago, then did a ‘visual integration’ to pick out about the “typical” volume. (Yes, all the carp out there can go calculate any of 3 or 4 different averages and get a different average volume. This is “close enough” and “representative”.)

So how has volume changed in a few metals ETFs and in the SPY S&P500 broad stock market ETF?

JJC   -  Copper
PPLT  -  Platinum
PALL  -  Palladium
GLD   -  Gold
SPY   -  S&P 500
ZSL   -  Silver "Double Short" ETF
SLV   -  Silver ETF
Today volume vs roughly one year ago 2010

JJC   -  275,954  vs  50,000 to 150,000 (volatile volume)
PPLT  -  164,951  vs  60,000 to 80,000 (so about a double)
PALL  -  534,010  vs  300,000 to 500,000 (not much change)
GLD   -  20,489,861  vs  25,000,000  (so gold is off a bit)
SPY   -  118,500,404  vs  350,000.000 (or about 1/2)
ZSL   -  33,139,477  vs  100,000  (So shorts are about 330 x) 
SLV   -  179,632,449  vs  5,000,000 to 12,000,000 (or about 15 to 35 x) 

In dollar terms, it’s even worse. Today the SPY dollar volume was:
Compare that to the SLV dollar volume at:

So about 1/2 the total dollar volume traded in the S&P 500 ETF (that is THE largest dollar volume ETF bar none).

Think about that for a minute. Eight BILLION dollars of silver. One day. What will happen when Ma and Pa instead of clicking the “Buy SLV” button click the “Sell SLV” button? It will crash, hard.

Since some folks were a bit slow to figure out that I was NOT saying “it is going down tomorrow” on the last posting about metals bubbles, let me make it perfectly clear: I AM NOT SAYING SILVER DROPS ANY TIME SOON. It could plunge tomorrow. It could double first. ALL I am saying is “This is a BUBBLE. Use Bubble Trading Rules.”

That is, expect that it could double, or that you could see it cut in half tomorrow.

For me, I’m not interested in that kind of “play” so I “sit it out”. I was saying “buy silver” back when it was about $10 an ounce. Since then, I’ve sold almost all of it. You buy when things are terribly cheap, not when they are terribly expensive.

Also realize one of my Market Mantras (tm ;-) is “Late in, Early out”. You want to leave a bit on the table for the other guy so they will buy your position. I’m HAPPY to be out early. I sleep better that way. (And again, for those who were a bit slow on the understanding, who tossed mud at me about this last time: That does not mean you can not make money riding it higher or to the last possible moment. Trailing stop loss orders are my vehicle for doing that. What it DOES mean is that for friends of mine who may read these blog postings once a month, I can’t say “Sell TODAY!!!” and have them read it a month late after losing 90% of their gain. I’ve got to describe things with enough lead time for folks to SLOWLY take it in. You may choose to live in the Espresso Line if you wish.)

So look at those volumes. Incredible ramp in silver, negative ramp in gold, nearly nothing in the other metals. Platinum and copper with minor jumps about in tune with their volatilities. WHICH is the odd case out? Silver.

Also notice that the silver SHORT fund is in a rocket ride of volume… Hmmmm….

OK, so is there anything else we can see in this pattern?

A couple of Charts

ZSL 2 x Silver Short ETF, 6 month chart with volume

ZSL 2 x Silver Short ETF, 6 month chart with volume

Look at that spectacular ramp up in volume. Big money (and savvy money that uses things like “ultra short funds”) is starting to place big bets that silver has reached a peak.

RSI is “way low” at below 20, and DMI- (the red line) has pulled below the ADX (black) line. ADX has not yet inflected to zero slope (that’s the “last call” IMHO) but we’re seeing the pattern that happens just before a turn to the upside (that would be a “downturn” in silver) forming here. At this point, the “trend” is still for silver to go up (and this short to go down), but some big money is starting to clear out those positions. (Some folks will be buying these shorts behind existing SLV positions so that WHEN they sell, they don’t care that it drives prices down… they are locking in the profit first. Watch for a giant down day when they dump those positions.)

How about SLV?

SLV Silver ETF 6 month chart with volume

SLV Silver ETF 6 month chart with volume

OK, same volume ramp but with a longer lead in time with higher volume in the lead. So a lot of total money has flowed in, that can’t flow out in one or two days… and will not have a protective short behind it.

RSI has gone over 80, and on this run is not going as high. DMI + (blue line) pulling away from ADX (black line) to the downside. Getting ready for the fall.

At 33 M contracts, the ZSL is not going to overwhelm the 179 M shares of SLV, but a significant part of that volume being sold to SLV is from folks shorting.

Two Ways

Now this can go one of two ways.

Either the shorts are going to be trapped in a short squeeze, or they are going to make a bundle as the parabolic rise in SLV turns into a plunge. IFF there is a shortage of physical metal for delivery, the shorts will get whacked. It is possible that some of what we are seeing in the SLV price is just that. Shorts buying SLV to cover prior short positions. From these two charts we don’t know what has happened in the silver futures market and what has happened in the physical market. But that ramp up in volume of ZSL is not from folks selling old short positions. There just has not been enough volume of them to make up that recent volume.

So my expectation is that the SLV trade is nearing a climax. Prices ought to “revert to the mean” and in this style of chart, that’s about that 50 day SMA line. Yeah, about $37. If it plunges past that point, there is no support below it for a long ways.

Could silver go higher from here? Sure. All it will take is over $8 Billion PER DAY of new money wanting to buy SLV. About $2.4 Trillion per year. Somehow I don’t think that is going to happen…

Silver Related Tickers

This chart shows SLV vs PAAS a silver miner vs SLW Silver Wheaton, a silver trader.

SLW Silver Wheaton vs PAAS a sliver miner, SLV Silver, and GLD gold

SLW Silver Wheaton vs PAAS a sliver miner, SLV Silver, and GLD gold

First off, notice that the silver miner is not keeping up and has not for some time. If traders expected silver to hold this price, the silver miners would be reflecting that in their stock price.

Next notice that SLW had been tracking silver (and with a bit of extra “lift” in the up runs), but even it has decoupled in this last run. The traders are not expecting this run to even be ratified long enough for a silver trading company to hold onto that value.

The canaries are saying to get out of the mine.

IMHO, this is the “last call”. All we don’t know is when the paddy wagon shows up…


This graph shows the various metals and currencies against the dollar. Their gentle rise is reflective of the drop of value of the US dollar. Notice how they are generally moving with about the same slope. (Though some more thinly traded metals, like Palladium, have much more volatility to the price and range more widely).

Currencies and Metals

Currencies and Metals

Now compare to silver:

Silver vs a basket of metals and currencies

Silver vs a basket of metals and currencies

The excess rise of silver vs ALL the others is indicative of the present bubble character.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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12 Responses to Silver: Bubble Bubble, boil and trouble

  1. R. de Haan says:

    It’s a clear message, thanks.

  2. E.M.Smith says:

    @R. de Haan:

    You are most welcome.

    One of the “hard bits” about this kind of posting is that folks want “buy this” and “sell this” with a ‘sort of today’ timing. Yet that is not at all how to manage a portfolio. If you are going to do that, you need to be watching a chart for a ticker at least every 15 minutes every single day.

    Even that may not help if things are in a bubble and it’s a news driven event that pops it. IIRC, the Hunt Brothers news hit when the market was closed and at the open the next day it was a slaughter.

    More important is to understand the nature of the market for a particular ticker, then trade it (or not) according to that type of market. Metals are volatile. Gold and Silver, especially, are driven by news flow and central banks (i.e. political hacks, often on the other side of the world so in a different market time zone). It can be just brutal.

    In that context, it’s important to know “What is driving this market?” THEN to decide if you want to trade that kind of driver THEN to decide how to put on a trade against that understanding.

    So last time I said “It is a bubble” and that it looked a bit long in the tooth to me. I’ve also said “bubbles go on longer than anyone expects”. Yet I still got some folks throwing rocks at me for saying it (their implicit presumption being that I’d said “silver is going down” when that is not at all what I’ve said… but they read things as “up” and “down” not as “volatile” vs “non-volatile”… A major mistake…)

    At any rate, I hope this time I’ve been “over the top clear enough” that saying “this is a bubble” is NOT the same as saying “this bubble has popped” or “this bubble is popping right now!!!!”. Silver IS clearly in a bubble. We won’t know that it is over until there is a very down day on startling volume, then a rise day with “failure to advance” past prior highs, then a start of “The Long Fall”.

    But by then it’s way to late to leave the party with your modesty intact ;-)

    So we arrive at parties “tastefully late” and leave shortly after desert, but before the bar fight breaks out by the pool…

    It seems like the polite thing to do ;-)

  3. JLouise says:

    Awesome analysis. The gold/silver shop I buy from has basically said the same thing……..this is not going to last forever. I’m enjoying selling off the cheap silver I bought in dribs and drabs, but I do want to get out of it relatively soon. I’m not obsessed with trying to sell at the tippy top of the market, because as you say, you don’t know when the plung is going to come. When silver falls from it’s high, it will be a huge fall.

  4. John F. Hultquist says:

    So, your title “Silver: Bubble Bubble, toil and trouble” did not strike me as being about investing. Instead, to my mind came the topic you covered in “Take a Bath” and the ingesting of chemicals. Apparently, silver has affected the minds of the masses with medicinal as well as investing potential. Both can be hazardous. A lady in a local facility for care of elderly has a remarkable skin color. For information, see this:

    Trouble. If you don’t have enough you can always make your own.

    Back on topic. I’d like to replace a few pieces of silverware, especially, spoons because 40 years of use and a trip into the whirling blades of the garbage disposal have not been kind. The Hunt-induced bubble took silver to about $50 an ounce and while the commodity price fell back to a normal level the finer products stayed high a long time. I finally quit watching so I can’t say how those prices behaved long term.

  5. NZ Willy says:

    Hi Chiefio, your graphs have lovely horizontal bottom edges, which unfortunately is the problem. What makes today’s silver ascent different is that the measuring medium, US$, is unprecedentedly sifting away like sand on a grating. Silver at $100 is not so unbelievable if the US$ is worth only half as much. And that’s just the beginning.

    You say, where is the $trillion? The Chinese have 2US$trillion that they are wanting to be shot of. Guess what they are buying. In hyperinflation, the winners are those who spend on the leading edge of the curve. The silver surfer, very Zen, very Chinese.

    You say they are shorting silver. But you are overlooking the going price. Two months ago, the “silver lease” rate went from negative to positive, across all the lease periods. The shorts today are buying *higher* prices, not the lower prices hitherto.

    The dynamic beyond your graph is the futuristic gleam and historic nostalgia of silver, and the dread of the Obama dollar. Surely you have seen the study which shows that people make their decisions *before* they reason it out. Don’t underestimate the social power and consequences of mass tidal emotion. It’s a world changer.

  6. E.M.Smith says:

    @John F. Hultquist:

    The present hype in the market is based on two “stories”:

    1) Silver is being remonitized, so will return to 15:1 vs Gold. Therefore $100 / ounce.

    2) Silver, especially as nano-particles, has antibiotic properties that nothing else can match. There is a new demand driver for everything from ingested silver to nano-particle embedded fabric that will not smell if sweat upon.

    Both have a kernal of truth in them (as all good bubbles do) but both are also out of touch with reality.

    Much silver is a byproduct of copper refining. That’s what drove it down to $5 / ounce (and not that long ago…). Right now, copper is not in as high a demand as it was during the housing boom, so less silver is produced too. As the economy recovers (and building homes, cars, electric cars, etc.) with it; there will be an increase in silver supply.

    That change of suppy economics is why it is no longer 15:1 with gold. (Add in that gold is looking a bit bubbly too, and you’ve got a ‘double dip’ into bubble land in that silver rationalization).

    But the core of truth is that some folks are hoping to treat silver as a ‘store of value’ and thus money. EXCEPT: Counties are not doing it. So it isn’t, technically, a national monitization. Just a small number of people in the world. (And a bunch of speculators). So it isn’t really a “monitizing” so much as it is “speculation”; and that means it’s more a “bubble”…

    On the nano-particle stuff: Yes, it does constitute a POTENTIAL new demand. A large demand at $5 / ounce. Not so much at $50. Asians especially will “pay up” for that feature. ( I met a doctor in Tokyo who owned an entire block of downtown for his “hospital”. He invented a procedure to take the top 1/2 of the sweat glands off of the armpits, which eliminates the excretion of the odor forming stuff. Made millions selling the procedure to folks who didn’t want to smell in the office after a subway ride… so there IS a market.)

    The problem is that it isn’t exactly a demand just now… it didn’t have onset in the last 6 months. So it’s a story being used to justify a preconception. That is, bubble fodder.

    (For unknown reasons, bacteria react to silver like any other heavy metal, i.e. toxic; while non-bacterial animals do not. We have a ‘sliver immunity’ if you will. So it CAN be used to kill bugs. Storing your water in a silver pitcher is actually healthy…)

    So some folks eat a bunch of silver and end up “blue”… as we don’t dispose of it very well either.

    At any rate, there is plenty more sliver to mine, and the more the prices rise, the more of it is economic to mine. When demand for copper picks up, even more as by-product will hit the markets. Also, if the demand for anti-biotic shirts really does take off, folks will find an alternative way to do it and replace $50 or $100 silver with something cheaper. It’s just how markets work.

    But all of that takes years to decades to unfold. For now, it’s just an ETF demand driven bubble with some nice stories behind it.

    Then there is also the chance that the EPA might step in:

    More than a year ago, a little noticed article reported a study that found silver nano particles as found in silver colloids were able to kill HIV, in addition to a broad spectrum of viral bugs. Now, the US health authorities seem to have found a way to prevent this breakthrough from making it into broad public use. According to an article on, the Environmental Protection Agency is now selectively targeting nano silver – while practically ignoring pharmaceuticals and toxic chemical pesticides – as an environmental pollutant.

    Tuesday, October 18, 2005 –
    The Journal of Nanotechnology has published a groundbreaking study that found silver nanoparticles kills HIV-1 and is likely to kill virtually any other virus. The study, which was conducted by the University of Texas and Mexico University, is the first medical study to ever explore the benefits of silver nanoparticles, according to Physorg.

    During the study, researchers used three different methods of limiting the size of the silver nanoparticles by using capping agents. The capping agents were foamy carbon, poly (PVP), and bovine serum albumin (BSA). The particles ranged in size from 1 to 10 nanometers depending on the method of capping. After incubating the HIV-1 virus at 37 C, the silver particles killed 100% of the virus within 3 hours for all three methods. The scientists believe that the silver particles bonded through glycoprotein knobs on the virus with spacing of about 22 nanometers in length.

    While further research is needed, researchers are optimistic that nanological silver may be the silver bullet to kill viruses. The researchers in the study said that they had already begin experiments using silver nanoparticles to kill what is known as the super bug (Methicillin resistant staphylococcus aureus). Already used as a topical antibiotic in the medical industry, silver may now come under consideration as an alternative to drugs when it comes to fighting previously untreatable viruses such as the Tamiflu resistant avian flu.

    According to NewsTarget, the EPA is using emerging regulations on the health effects of nano particles to selectively target colloidal silver products as “pesticides”.

    So the “story” goes that this is going to be a “magic bullet” for all sorts of things… and of course with no possible downside…

    Oh, I’d add to this that about 40 years ago I had a viral “cold sore” treated by my doctor with “tincture of silver nitrate” with nearly instant cure. The antibacterial and anti-viral properties of silver are not a new discovery…

  7. E.M.Smith says:

    @N.Z. Willy:

    Look at the percentage rise in silver vs the other metals.

    Yes, the above graphs have nice horizontal bottom edges. That’s why I regularly “measure the rubber ruler” (see just about every WSW posting for the last couple of years).

    That the dollar is in decay is absolutely not why silver is rising as it is. (It is the reason why all the other currencies are rising at a much lower rate) and it does account for about 1/10 of the rise of silver. In other words: You can completely ignore it as silver is rocketting up so fast it has nothing to do with the dollar.

    You also seem to be in the camp that takes what I’ve said to mean: “Silver is too expensive and must drop soon” despite my specifically disclaiming that interpretation. Try again.

    Silver is in a bubble. Just like the Dot.Com bubble and the Housing Bubble, they can rise to great heights.

    Then they WILL pop, and collapse will follow: But you don’t know when.

    So for a “store of value” against a falling dollar, I would rather be in something more stable. Swiss Francs, platinum, palladium, etc. Things that DO reflect the decay of the dollar and that DO store value but without being in a bubble exactly because you can’t know when it will pop or how far and how fast it will move.

    To say that: does not, absolutely does not, mean that I’m thinking the dollar is stable or that folks are not going to hedge by buying other things. Nor does it mean that I’ve “missed that”.

    Two Very Different Things.

    1) Dollar in slow decline. Race it against currency baskets and metals baskets for measuring. It drops, the baskets rise.

    2) Silver in particular is in a bubble. IT is rising out of all proportion to ALL currencies and ALL other metals.

    So “try again”…

    BTW, your enthusiam and your argument amounts to “This time is different”. Think about it…

    I’ve added an “Update” with a basket of metals and currencies so you can see what part is due to the “drop of the dollar” and what part is due to “bubblicious”…

  8. NZ Willy says:

    As a sidelight, a story of heroism from the silver pits in the week of 11-15 April. Silver has just broached $40/oz, and the Aussies started the week by spiking silver to $42 but it was premature. Silver settled back down to $40.10 by midday, and then followed three days of intense, even heroic, financial grinding. Huge volumes, massive sell orders invariably met by old buyers and new buyers stepping up to the plate. Three silver Stalingrad days of no-retreat furious pit action until on Thursday the sellers were all mopped up and the brears broken, and silver roared to $43. An amazing week.

  9. R. Shearer says:

    When my mother wants to buy something, it seems to portend a plunge is coming. I knew something was up in early 2000 when she wanted to invest in stocks.

    Just last week she mentioned that one of my sisters had purchased a bunch of silver coins and was doing well with it. I’m tempted to tell my sister to keep quiet and sell enough coins to take her principal off the table.

    I got out of SLV about 10 pts ago unfortunately; waiting for the break to purchase ZSL. I’m afraid that it will be tough to time.

  10. gnomish says:

    the entire supply of silver, even at today’s prices, could be purchased for $2+ trillion

    USGS (United States Geological Survey)

    Click to access 2004-1251.pdf

    “Total silver production from pre-history till 2001 is estimated by the U.S. Geological Survey (USGS) to have been about 1.26 million metric tons (Mt), one half of which was mined in the last 62 year period.” (Page 8)

    1.26 Mt x 32,150.75 ounces/ton = 40.51 billion ounces + 2.46 billion
    (production from 2001-2005) = 42.97 billion ounces

    Cumulative Silver Production = 42.97 billion ounces

    It was not made quite plain in the msm that the silver (and also copper) coins for which von NotHaus, the ‘domestic terrorist’, was recently imprisoned – ‘to deliberately damage confidence in the american currency’ – were Ron Paul commemoratives…lol

    they fetch quite a premium on ebay these days.

    btw, i met a fellow named Paul – known as ‘the blue man’ – when i was staying at the mission in Bellingham last year:

    (the doctor is a much weirder freak, tho…lol)

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  12. R. de Haan says:

    E. M. the anti bacterial properties of silver are also in copper.
    Massive application of copper finished hospital equipment going on to fight MSRI bacteria including copper containing bed sheeting.

    As for the odor application, I bought a pair of socks last year but to be honest, really honest, they didn’t bring much.

    In consumer markets the ‘silver’ as a brand however will do better than copper because copper is still related with copper poisoning and that is branded in people’s minds.

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