Silver needs to hit $135!!!NEW YORK (Commodity Online): Investors have been goingbullish on silver. Silver has been on a bull run along with theglittering gold in the last one year, driven by the commodities supercycle that is on these days.
In the last one year silver pricehas soared from $17 to touch a 30-year high of $30. But despite therecord rise in silver price, it has not yet caught up with the historicsurge in silver price that happened in 1980.
According to silverbulls and commodities analysts, if we compare the 1980 of silver at$48, today’s silver price is insignificant.
Precious metalsanalyst Adam Hamilton says “on January 21st, 1980 at its all-time high,$48 silver translates into $135 in today’s dollars.”
“In otherwords, it would take $135 today to equal the purchasing power of $48three decades ago. Per the lowballed CPI, it takes 2.81 dollars now tobuy what a single dollar bought then. You can thank the Federal Reservefor this enormous stealth tax that has eroded all the capital you havesaved ever since,” he points out.
So where is silver heading?Can it touch $135 in 2011? Or can it go $50 as some silver analysts havepredicted in December 2010?
David Johnson, a precious analyst,says that silver is headed for higher prices thanks to the increasingdemand for the white metal for industrial use and for jewellerypurposes.
“More and more silver demand is coming from countrieslike China and India for industrial and jewellery needs. Whileindustrial use of silver is soaring in China and India, rising price ofgold jewellery is forcing people in these countries to opt for silverjewellery,” Johnson points out.
Barclays Capital says in a notethat recent consolidation in silver has not dampened the bullish view.Referring to silver in dollar terms, it said: “Daily momentum studieshave unwound from overbought levels and now offer opportunity forfurther gains”
“We expect buying interest above 28 to underpin arally through Monday’s 31.26 high and target a Fibonacci projection at33.20.” The bank says a seasonality chart for silver also suggestsJanuary as a likely month for an advance.
“The historical mediangain suggests that we could well close the month in the 31.35 area,while the historical mean average gain calls for a rally extension toclose the month in the 32 area,” Barclays said.
One of the most fascinating analysis of silver’s historic rise has been penned by Adam Hamilton:
At$30 silver today is only 22% of the way to matching its blow-offparabolic top at the end of its last secular bull in early 1980.Considered another way, silver would have to soar 350% from today’slevels before it could exceed its all-time high! So while $30 certainlyfeels high compared to recent years’ silver-price history, compared tothe end of a mighty secular bull it is actually relatively low.
Silverstayed above $30 real more or less continuously between August 1979 andApril 1981! Any price that persists for 19 months is nowhere close tobeing a bull-killing topping level. The popular mania that drove silverstratospheric in late 1979 saw it exceed $100 real on just 20 tradingdays, and it closed over $125 in today’s dollars on only four days. Allthe Wall Street arguments implying today’s $30 is so high that silver’sbull has to be over are just plain incorrect, historically myopic.
Nevertheless,silver is sure not cheap today at $30 either. By its own bull-to-datestandards, silver has been super-overbought continuously since earlyNovember. It surged then when the Fed announced it was monetizing vastlymore US Treasuries, or creating new dollars out of thin air to buyWashington’s debt. Being stretched so high on a short-term basis means atypical sharp silver correction is highly likely. These healthyretreats are usually big and fast, lopping a quarter to a third offsilver prices in less than six weeks!
So while you can’t usethis long-term real chart to ignore silver’s overbought technicals, youcan sure use it to show silver’s secular bull is nowhere close toextreme yet. While silver did rally 76% between July and December 2010,no mean feat, this recent upleg looked nothing like a popular-maniaparabolic blowoff. Between August 1979 and January 1980, a similarfive-month span, silver skyrocketed 450% higher! There is just nopossible comparison between that legendary parabola and 2010’s autumnrally.
Whenever I delve into real silver, I can’t resist lookingat that 1970s superbull rendered in today’s dollars. While silver isindeed a great investment during a secular precious-metals bull, thememories of what really happened in the 1970s have been seriouslydistorted. Silver enthusiasts, usually inadvertently but sometimesintentionally, tend to misrepresent exactly how that last secular bullplayed out.