In Ted Butler's Archive


Twice over the past 42 years, the price of silver has risen to $50; once back in 1980 and again 11 years ago, in 2011.  Obviously, no one would argue that something that occurred twice already is not capable of happening again. On both prior silver price peaks, prices then fell quickly. However, the next move to $50 in silver is much more likely to exceed the past two highs, and remain higher for far longer.

In 1980, the price of silver rose from $7 to $50 in little more than a year, driven by the concerted buying, both in futures and physical metal by interests associated with the Hunt brothers from Texas. It then fell even more sharply as a result of exchange and regulatory actions to unwind the Hunts’ buying. But the epic price run-up showed, conclusively, that speculative investment buying could drive silver prices sharply higher.

In 2011, silver hit near $50 again, but this time there wasn’t the slightest hint of heavy speculative buying in silver futures, an area I monitor closely. Instead, the price surge was due to physical buying of silver, mainly by exchange-traded funds, investment vehicles that didn’t exist in 1980. The sharp price fall, starting in May 2011, was engineered by interests associated with JPMorgan and succeeded in persuading silver ETF investors to sell.

The coming silver price surge to $50 (and beyond) will be driven by both physical and paper buying and will occur against a backdrop far more bullish than existed in either 1980 or 2011. For one thing, there is far less silver in the world than existed in 1980, as a result of a deficit consumption pattern that prevailed for at least 25 years to 2005 and used up the above ground supply. And while there is just as much (or more) physical silver in the world today than existed in 2011, that silver is now owned by investors (including JPMorgan) in the world’s silver ETFs to an extent never witnessed.

Of the 2 billion ounces of silver that exist in 1,000-ounce bar form (the form that matters most to price), more than 1.1 billion ounces (or 55%) is owned by the world’s silver ETFs. (Another 300 million ounces are held in the COMEX warehouses, making the total amount of silver bullion in recorded form a remarkable 70% of all the silver in the world). Back in 2011, there was less than half that amount in the world’s silver ETFs. In 1980, investors held no silver in the world’s silver ETFs, since they were only introduced in 2006. The key point here is that there is dramatically less physical silver available today than in 1980 and 2011. Yet, at the same time, there are many trillions more investment dollars.

One important consideration often overlooked is that the first price run-up to $50 in 1980 resulted in an avalanche of silver coming to market, in the form of old coins and bars, as well as silver artifacts of every type imaginable, including silverware, trophies, cooking and serving pieces. Hundreds of millions of ounces came to market in the Great Silver Melt of 1980. After all, silver’s price had been a little more than a dollar an ounce for many decades before 1980. It mattered little that discounts of 50% and greater were received for the silver artifacts melted – the price advance was great enough to provide a windfall for the sellers. The huge price jump prompted people to sell whatever silver items they owned.

In addition, over the next 20 years, the U.S. government would come to sell the remaining hundreds of millions of silver ounces it still held in 1980. They sold by auction or by providing the silver for the American Silver Eagle program started in 1986. In the second silver run-up to $50 in 2011, there was a second wave of melting, but nowhere near as large as the melt in 1980. The striking thing about the Great Melt in 1980 and its minor sequel in 2011, is that once someone sells his or her unwanted silver artifacts, they can’t be sold again because they have been melted. The unmistakable conclusion is that the next run to $50 will not bring great supplies of silver to the market because there is not that much left remaining to be melted. And just like in 2011, the U.S. government can’t dispose of silver since it doesn’t own any – a far cry from the 5 billion ounces it held in 1940.

All the while, the physical industrial demand for silver, from 1980 and 2011, has increased, while since 2011, mine production has been static, due to the ongoing price suppression on the COMEX. Owing to silver’s great industrial versatility, when the former main use of silver in photography almost disappeared due to digital photography, it was replaced by demand for new uses, such as for solar panels, a use that didn’t exist in 1980 and that has grown by leaps and bounds since 2011. Take a look around and try to deny that the modern world isn’t becoming more electronic and electrical every day and that the world’s best electrical conductor, silver, won’t play a vital and expanding role.

The absolute key to the coming silver price surge to $50 and beyond is the same force in play in 1980 and 2011, namely, investment demand. But whereas investment demand suddenly exploded in 1980 and 2011, silver investment demand has been surging for years, growing even as prices have remained stagnant. Investment demand has engendered such a rabid belief in higher prices to come that any thought of liquidation on lower prices seems absurd. There’s even a grassroots internet movement that has sprung up over the past two years devoted to promoting the buying of silver. Followers number in the hundreds of thousands. No such movement exists in any other commodity, not even gold.

Today, more people than ever understand that silver has been artificially depressed in price and are putting their money in silver. This was not the case at all in 1980 or 2011 and just about guarantees that silver will soon lift off in price to the former peak levels and beyond. There has never been a setup like this before and it would be a shame not to take advantage of it.

Editor’s note: Back in 2005, Mr. Butler was predicting that silver would go up 10 times. It did exactly that.

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