In Ted Butler's Archive


If it was easy to ascertain market tops and bottoms, everyone would be a billionaire. While few can divine the future, it is an investment axiom to buy low and sell high. If one can buy an undervalued asset at close to the bottom it doesn’t get much better than that. The combination of deep undervaluation and a market bottom appears to be the case currently in silver.

There are no excessive silver supplies pressing on price. Recurring retail shortages over the past 5 years indicate the opposite. Likewise, on a wholesale basis (1,000 ounce bars), total visible world inventories have not grown at all over that same time. There is no glut of any kind in silver bullion on a wholesale basis. Yes, the price of silver may suggest some physical oversupply that no one can see, but it’s the price of silver that is wrong, not the verifiable data. Investment wisdom lies in buying undervalued assets and selling overvalued ones.

The tiny amount of world silver bullion inventories, at 1.3 billion ounces, comes to less than $20 billion at current prices. Compare that to gold, where total gold inventories are valued in the trillions of dollars. The extremely low dollar value of the world’s silver almost guarantees its valuation can increase much faster than assets with much higher current valuations, like gold. That’s not to say gold can’t move much higher in price, just that silver should move proportionately higher still. It’s not like silver doesn’t have a history of big price moves, since it has run to $50 from single digits twice before. Based upon its history, silver should have no problem getting to $50 or higher from current levels. Particularly since the case today is more compelling than in the past.

I’m heavily influenced by the data on the silver market compiled by the federal regulator, the CFTC. I know most peoples’ eyes glaze over when confronted with the Commitments of Traders Report; but for more than 30 years, this data has explained past and future price movements. Recent changes in this report tell me we are likely to witness an impressive rally in silver that could easily turn into the big rally I have long expected. The key commercial traders in COMEX silver, especially JPMorgan, have rigged prices lower to get other traders to sell so that they could buy. This has occurred regularly over the years and has always resulted in silver price rallies. However, there are aspects about this most recent decline that are special, like the persistent day after day price decline. It tells me that the rally this time may be much more dramatic than previous setups.

In addition, deposits have been made in the silver ETF to reduce the short position to its lowest level in years. A big buyer (probably JPMorgan) continues to purchase record quantities of Silver Eagles. There is little doubt that JPMorgan has accumulated over 400 million ounces of physical silver and has dramatically reduced its paper short position in the recent sell-off.

Not only is silver undervalued on a fundamental basis, recent trading activity on the COMEX points to it being at a market bottom. The current price of silver is wrong and will only be made right at a much higher price level. I have thrown caution to the wind and now own more silver than I ever have and would suggest you study the matter and consider doing the same.

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