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Where is the bottom in silver going to be?

By iwog   Follow   Fri, 23 Sep 2011, 5:50pm   6,972 views   99 comments
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Now that the bubble has blown up, the important question is how low will it go?

There are several ways I've calculated this number. First of all, speculative bubbles tend to bottom out at about 20% of peak value. This was true for oil, the Nasdaq bubble, the 1929 stock market crash, and the 1980 silver bubble. The no-brainer way to analyze this is to simply say silver is going to do again what silver did before. This means silver will be selling for $10 an ounce in 3 months. Here's the chart:

The problem is that silver's chart most resembles the Platinum bubble. The platinum bubble bottomed out at 36% of peak.

Platinum is much more scarce than silver and my guess is that it was speculated in to a far less degree than silver was, therefore I would favor the 20% model over the 36% model. Picture a tight market in industrial platinum versus millions of troy ounces of silver being dumped into the market from SLV and Comex vault hordes. However there's a second way to compare the two that also favors 20%. Both metals were essentially ignored by investors during the 1990s as inflation was low and all eyes were on the stock market. During this time, Silver was selling for $4.25 an ounce and Platinum $400.

After the bubble, Platinum settled out at about $800 per ounce, or twice its value during this equilibrium period. If silver was to do the same, it would settle out at $8-$9. It's a good fit and conforms to the platinum chart I like so much.

So that's it folks. I personally will not sell my short positions or buy long positions in silver until we see $10-$15 again. It might be a short wait, and I'll be ready to buy when we get there. Oil, the Nasdaq, and Platinum all had huge rallies after the bubble collapse and it should be a great time to buy. All the economic factors are still very positive for metals, but they aren't going to stop the selloff for now.

This also means that short plays might still be very valuable.

Disclaimer: I'm short up the wazoo in silver.

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1. uomo_senza_nome Follow Befriend (13) 787 threads 1,542 comments

   20   1:32pm Sat 24 Sep 2011   Share   Quote   Permalink   Like   Dislike   Bellingham Bob says Not exactly. China could & can grow with or without the massive trade deficit. Your argument that China would have grown no matter what ignores the most important part of their growth equation: exports. Where are they going to export their surplus goods? The largest consumer market at the time was United States and they had to establish trading partnership to ensure their surplus was consumed. If you don't have a consumer, you got no trade. Bellingham Bob says China was going to grow with or without this approach, they just did what they could to capture the surplus instead of letting us have it. Again, how come you find that this whole unstable trading system is no fault of United States? It is US trading policy that everyone else had to adhere to. What do you mean they "captured the surplus"? They did not do it for free, they gave away the manufactured goods for cheap. They supported this insatiable debt system of United States and of course they have to face the consequence of it. But its not like they treated US unfairly. All is fair in this game and its just a matter of who comes ahead at this point. Is it the debtor or the creditor? we'll see.

2. ¥ Follow Befriend 35 threads 5,700 comments Bellingham, WA

   21   1:48pm Sat 24 Sep 2011   Share   Quote   Permalink   Like   Dislike   austrian_man says Your argument that China would have grown no matter what ignores the most important part of their growth equation: exports. Where are they going to export their surplus goods? The largest consumer market at the time was United States and they had to establish trading partnership to ensure their surplus was consumed. If you don't have a consumer, you got no trade. I was saying China was going to GROW and EXPORT regardless of who kept the surplus. The Chinese dropped the yuan to 8: http://research.stlouisfed.org/fred2/series/DEXCHUS and they were off to the races. The CCB was PRINTING YUAN regardless of where the USD in the trade ended up. The CCB could have just rebated the $1.2T+ USD to us (eg. Walmart, Home Depot, etc) directly instead of buying UST with the trade surplus from the wage/currency arbitrage. It is true we wouldn't have transferred our industrial processes to them if we weren't getting exports from them, well, not with the celerity we did at least. how come you find that this whole unstable trading system is no fault of United States? It is US trading policy that everyone else had to adhere to. What do you mean they "captured the surplus"? They did not do it for free, they gave away the manufactured goods for cheap. The only people who got screwed in this was the Chinese worker selling their labor too cheap, but when there's 120 MILLION PEOPLE in your cohort, you dont' really get a say on what wage you take home. The "United States" is not some monolithic enterprise with a single account of morality. There have been big winners here at home with the $3T+ trade imbalance with China. WMT & AAPL shareholders, and their consumers able to save some money buying cheaper stuff. The losers are easy enough to see: http://research.stlouisfed.org/fred2/series/MANEMP?cid=32311 but too bad so sad for people wanting to work for a living anyway. Much more fun flipping houses to each other. We should do that again.

3. ¥ Follow Befriend 35 threads 5,700 comments Bellingham, WA

   22   2:53pm Sat 24 Sep 2011   Share   Quote   Permalink   Like   Dislike   austrian_man says ignores the most important part of their growth equation: exports in case I wasn't clear, the most important part of Chinese growth was their monetary policy knocking a zero off of Chinese wages in the 1980-90s. Everything followed from that. Even at the current 6+ FX rate Chinese labor is still essentially free -- a FOXCONN worker can work all day what it costs a US worker to clock in the morning (~$10). A labor pool of hundreds of millions of diligent & educated workers literally starving for work was a resource that was not going to go untapped by the transnational capitalist system for long. Things didn't have to develop into a $3T accumulated deficit, but the CCP's technocrats played the game a lot smarter than we did, 1990-now. Us being a nation of idiots and all.

4. uomo_senza_nome Follow Befriend (13) 787 threads 1,542 comments

   23   3:45pm Sat 24 Sep 2011   Share   Quote   Permalink   Like   Dislike   This Bellingham Bob says The "United States" is not some monolithic enterprise with a single account of morality. and this Bellingham Bob says capture the surplus instead of letting us have it. make it clear that you meant the middle class. Understood :) And fully agree as well. Bellingham Bob says in case I wasn't clear, the most important part of Chinese growth was their monetary policy knocking a zero off of Chinese wages in the 1980-90s Well yeah, wage arbitrage enabled them to produce goods with very less cost overhead and then export it for profit. The importing 'corporation' can sell it for cheap in US dollar terms and make more profit. All goes merry until the household debt saturates to a point of suffocation. Financiers make profit along the way too through issuing more debt, which is backed by...guess what..debt.:) Bellingham Bob says Things didn't have to develop into a $3T accumulated deficit, but the CCP's technocrats played the game a lot smarter than we did, 1990-now. I don't know about that. You think China doesn't have mal-investments? Have you seen the Ghost cities video? Empty malls, apartments, railway stations, infrastructure that lead to nowhere. So the problems are everywhere as money is cheap and assets are controlled by the wealthy few.

5. ¥ Follow Befriend 35 threads 5,700 comments Bellingham, WA

   24   4:36pm Sat 24 Sep 2011   Share   Quote   Permalink   Like   Dislike   austrian_man says All goes merry until the household debt saturates to a point of suffocation. The debt came from the trade deficit, not the trade itself. Had the trade been in balance, there would be no need for debt take-on on our end. We buy $10 worth of stuff from them, they buy $10 worth of stuff from us (eventually, they might buy $5 worth of stuff from us & $5 of stuff from Economy B and Economy B then buys $5 worth of stuff from us, too). But when we buy $10 of stuff from them and only get $2 in actual trade in return (like 2006-now) we've got a capital flow problem not a credit problem per se. It was our various economic sins running up debt: http://research.stlouisfed.org/fred2/graph/?g=2pA CMDEBT (total consumer debt) rose from 0.7 to 1.0 GDP 2000-2007. TCMDODFS (financial sector debt) rose from 0.8 to 1.2. FGSDODNS (government debt) remained low until the games on the private side blew up TBSDODNS (nonfinancial corporate debt) also remained low, compared to the bubbles on Wall Street and household debt, though took off towards the end as the housing bubble lifted all boats: http://research.stlouisfed.org/fred2/series/TBSDODNS that create a complex story of what happened. (note that GDP rose thanks to debt rise, so the actual debt ramp was much worse than this graph depicts) I think we were using home valuation inflation (thanks to interest rates falling from 8% to 2-3%) to replenish middle class capital losses to China, plus give us the capital to borrow money from ourselves to fight in Iraq, plus cover the higher price of oil and our increasing dependence on imports... From the graph we can see that Big Finance was also leveraging up on the cheap money, playing the housing market along with whatever else they were doing with their trillions (who knows). I think the 2000s "tech recession" was a wake-up call that the middle class was beginning to get liquidated. Greenspan hit the snooze bar with near-ZIRP 2002-2004 (I think the Team Red PTB didn't want to lose control of the system like what happened in 1992 so they were willing to see things balloon up instead of continue the misery of gradual capital outflow to China). China wasn't a major buyer of treasuries until 2004. but IIRC they were a strong investor in agency debt: http://fpc.state.gov/documents/organization/99496.pdf shows they held $255B in agencies vs. $364B in treasuries as of 2008. So that was one mechanism by which the CCB funnelled the wage arbitrage surplus back to us, giving us billions to bid up the cost of housing. Genius! You think China doesn't have mal-investments? Have you seen the Ghost cities video? My argument isn't that the CCP is a perfect machine, only that they're playing the game (at the state level) better than our government, so that's a strawman response. Anyhoo, the city in the video was built to attract inland settlement, much like building a big-ass city out in Western Colorado or something. There's the occasional ghost city out in the sticks but that's anomalous really, an artifact and demonstration of the power of central planning to really screw things up. The actually settled & productive areas of China are way too crowded to allow complete ghost cities to remain that way for long (though I gather individual condo developments are built but remain empty due to specuvestors holding them off the market). This should not be surprising considering that our government is captured by corporatocrats ("what's good for GM/C/BAC/GS is good for America").

6. mdovell Follow Befriend (4) 28 threads 776 comments

   25   5:30pm Sat 24 Sep 2011   Share   Quote   Permalink   Like   Dislike   I remember reading arguments that there was more silver on paper than actually exists (fractional reserve again).. But also that there is some that is somehow "leased" (anyone chime in on this?) Some of the interest on leasing is now in the negative for anything less than six months.. http://www.kitco.com/charts/s_leaserates.html

7. iwog Follow Befriend (48) 273 threads 12,525 comments 47 male Lafayette, CA Premium

   26   11:09am Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike

8. ¥ Follow Befriend 35 threads 5,700 comments Bellingham, WA

   27   2:16pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   So people who bought 1 contract in say March were up $60,000 (+300%) in late April, back to down $2500 (-10%) during the May crash, eventually up $35,000 (+150%) in August, but this week went from being up $23,500 (+100%) to down $23,500 (-100%). Whee! Let's do that again!

9. ¥ Follow Befriend 35 threads 5,700 comments Bellingham, WA

   28   2:25pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   Heh, Clive could read a chart: http://www.kitco.com/ind/maund/sep192011_silver.html

10. iwog Follow Befriend (48) 273 threads 12,525 comments 47 male Lafayette, CA Premium

    29   3:45pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   Very Doubtful says Regardless of how low this engineered drop in PM's goes, I bet they'll shoot right back up and OVER their previous highs. Did they engineer platinum too? The Nasdaq? The oil market? You realize that all those graphs are nearly identical in both magnitude and time scale? The global economy is going down, of that I have no doubt. However there are billionaires like Soros, Koch, and others who are taking gigantic positions in commodities that make the government's involvement look like peeing in the ocean. Fact: Production of silver has exceeded industrial consumption of silver every single year since 2004. In 2010, silver production exceeded industrial consumption of silver by 178 million ounces while government sales of silver totaled a mere 44 million ounces. Fact: Excluding government intervention in 2010, production of silver still would have exceeded industrial demand by 134 million ounces. Presumably all of that excess was stockpiled by investors. Fact: No matter what the world economy does, you cannot overproduce a commodity above and beyond demand without the price going down. Therefore since the price has gone UP since 2004 and not down, and since the price has gone up more than 500%, we have a bubble. http://www.silverinstitute.org/supply_demand.php

11. ¥ Follow Befriend 35 threads 5,700 comments Bellingham, WA

    30   3:57pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   It'd be cool to "lease" silver for two months. They'd /pay/ me to fondle it for a while then give it back?

12. ¥ Follow Befriend 35 threads 5,700 comments Bellingham, WA

    31   4:01pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   iwog says Did they engineer platinum too? The Nasdaq? The oil market? Money, money, every where, And all the boards did snark; Money, money, every where, Without any place to park.

13. ¥ Follow Befriend 35 threads 5,700 comments Bellingham, WA

    32   4:25pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   iwog says http://www.silverinstitute.org/supply_demand.php "Primary silver mine cash costs remained relatively flat year-on-year, falling by less than 1 percent to $5.27/oz. from a revised $5.29/oz. in 2009." LOL. Bubble? What bubble?

14. Goatkick Follow Befriend 6 threads 101 comments Clarendon Hills, IL

    33   5:18pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   Thanks Iwog

15. E-man Follow Befriend (31) 34 threads 2,545 comments San Jose, CA Premium

    34   6:10pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   I'm with Iwog. If you're a technical trader, you would have sold at least 1/2, if not all, of your silver position on Friday. Margin call is in the works. Likely more pain for silver in the near future. Silver has entered BEAR territory. Iwog sold 1/2 of his gold position recently because it looked like a double top. I think there will be more pain for gold ahead too althought gold hasn't entered bear territory yet. We've had a great run on the stock market for about 2.5 years. It shouldn't be a surprise if we stay in the bear market territory for the next several months. Good luck to all. :-)

16. ¥ Follow Befriend 35 threads 5,700 comments Bellingham, WA

    35   7:10pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   E-man says We've had a great run on the stock market for about 2.5 years. LOL, conveniently dated from the hole. We're DOWN 6% on the 3 year chart. 2H10 ~ 3Q11 looks to me like 2H06 ~ 3Q07 -- a sucker's rally: The former was the fumes on the $6T housing bubble, the latter was the fumes on kicking the can with ~$4T of new Federal debt since 2007. http://research.stlouisfed.org/fred2/graph/?g=2qx Here's a graph of the 10 year bond since the Republicans took over the House: http://research.stlouisfed.org/fred2/graph/?g=2qy Looks like the market is discounting the nation getting "austerity", good and hard.

17. iwog Follow Befriend (48) 273 threads 12,525 comments 47 male Lafayette, CA Premium

    36   9:21pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   Very Doubtful says The greatest argument of all for $50 per oz silver! Of course. I'll put on my tinfoil hat and bet against silver anyway. As I said last week, if you think this is a buying opportunity, you're going to get chewed up badly.

18. uomo_senza_nome Follow Befriend (13) 787 threads 1,542 comments

    37   10:45pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   Iwog, how low do you think gold will go? its trading at $1595 at the moment. $1200?

19. iwog Follow Befriend (48) 273 threads 12,525 comments 47 male Lafayette, CA Premium

    38   10:53pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   austrian_man says Iwog, how low do you think gold will go? its trading at $1595 at the moment. $1200? I'm pretty sure it's going below $1000 before turning around. I'm watching silver dive right now and I can't believe how fast it's crashing. I hope the brokerage houses stay solvent.

20. terriDeaner Follow Befriend (7) 70 threads 1,151 comments

    39   11:03pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   iwog says I'm pretty sure it's going below $1000 before turning around. Along these lines, what's the current price to extract a purified oz of gold?

21. uomo_senza_nome Follow Befriend (13) 787 threads 1,542 comments

    40   11:05pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   iwog says I'm pretty sure it's going below $1000 before turning around. You're forecasting a severe recession then? I dunno, I'm not that pessimistic about the market. During 2008 recession, it fell from $1000 to below $780 and then started climbing back. iwog says I'm watching silver dive right now and I can't believe how fast it's crashing. SHTF..silver is hitting the floor.

22. iwog Follow Befriend (48) 273 threads 12,525 comments 47 male Lafayette, CA Premium

    41   11:06pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   Not sure. There are people extracting it in South America for practically nothing. This is what I'm looking at right now on my computer. It's stunning:

23. terriDeaner Follow Befriend (7) 70 threads 1,151 comments

    42   11:07pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   iwog says This is what I'm looking at right now on my computer. It's stunning: Yeah, credit where credit is due - good call!

24. uomo_senza_nome Follow Befriend (13) 787 threads 1,542 comments

    43   11:10pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   do you still think there's time left to buy the SLV put? My acct is showing Dec 17 Put at 1.41 per contract.

25. iwog Follow Befriend (48) 273 threads 12,525 comments 47 male Lafayette, CA Premium

    44   11:10pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   austrian_man says You're forecasting a severe recession then? I dunno, I'm not that pessimistic about the market. During 2008 recession, it fell from $1000 to below $780 and then started climbing back. Forget fundamentals for now. This is a speculative bubble crash. People who were long on silver and gold betting on runaway inflation are in pure panic mode. They are going to wake up tomorrow getting margin calls, not just for futures but for SLV and GLD as well. Fundamentals are back in play in 4-6 months.

26. iwog Follow Befriend (48) 273 threads 12,525 comments 47 male Lafayette, CA Premium

    45   11:11pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   austrian_man says do you still think there's time left to buy the SLV put? My acct is showing Dec 17 Put at 1.41 per contract. I'm still betting on $15 by February. At this rate, it will be $15 by October.

27. uomo_senza_nome Follow Befriend (13) 787 threads 1,542 comments

    46   11:11pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   iwog says Forget fundamentals for now. This is a speculative bubble crash. People who were long on silver and gold betting on runaway inflation are in pure panic mode. haha you're right. never bet against the king ;)

28. terriDeaner Follow Befriend (7) 70 threads 1,151 comments

    47   11:16pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   BTW, here's the kitco chart for gold: Service Unavailable

29. ¥ Follow Befriend 35 threads 5,700 comments Bellingham, WA

    48   11:23pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   iwog says People who were long on silver and gold betting on runaway inflation LOL. What about http://research.stlouisfed.org/fred2/graph/?g=2qy didn't they understand???

30. iwog Follow Befriend (48) 273 threads 12,525 comments 47 male Lafayette, CA Premium

    49   11:46pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   Interest rates are complex and foreign to the average person while a right-wing idiot selling gold and screaming "OBAMA IS GOING TO BE CARTER AND CAUSE HUGE INFLATION" doesn't take a lot of intellect to digest. Kinda makes you wonder about Beck and Limbaugh and Savage who all have corporations that sell gold sponsoring their programs.

31. terriDeaner Follow Befriend (7) 70 threads 1,151 comments

    50   11:50pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   iwog says Kinda makes you wonder about Beck and Limbaugh and Savage who all have corporations that sell gold sponsoring their programs. Care to take a guess at who they'll blame?

32. terriDeaner Follow Befriend (7) 70 threads 1,151 comments

    51   11:55pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   And what is going on with bloomberg? No data updates for at least an hour. And kitco is SLOOOOOOOOOW...

33. iwog Follow Befriend (48) 273 threads 12,525 comments 47 male Lafayette, CA Premium

    52   11:56pm Sun 25 Sep 2011   Share   Quote   Permalink   Like   Dislike   terriDeaner says Care to take a guess at who they'll blame? Oh I have no doubt. Their crusade to make lowering the deficit in the middle of a depression was successful. terriDeaner says And what is going on with bloomberg? No data updates for at least an hour. Most commodities got murdered. Oil is down under $78. Silver and gold are making a small comeback but it isn't going to be more than 1-2% I bet.

34. terriDeaner Follow Befriend (7) 70 threads 1,151 comments

    53   12:03am Mon 26 Sep 2011   Share   Quote   Permalink   Like   Dislike   iwog says Most commodities got murdered. Oil is down under $78. Silver and gold are making a small comeback but it isn't going to be more than 1-2% I bet. Thanks for the update. Probably time hit the sack and view the carnage in the morning anyhow.

35. ¥ Follow Befriend 35 threads 5,700 comments Bellingham, WA

    54   12:07am Mon 26 Sep 2011   Share   Quote   Permalink   Like   Dislike   iwog says "OBAMA IS GOING TO BE CARTER AND CAUSE HUGE INFLATION" doesn't take a lot of intellect to digest. Part of their belief system is that "Gubmint" spending and "Uncertainty" is preventing the "Job Creators" from putting this nation back to work. (LOL) As for Carter, here's my 'baby boomers caused inflation' thesis tested: http://research.stlouisfed.org/fred2/graph/?g=2qO (blue is annual CPI, red is fed funds rate, and yellow is annual increase in age 16+ population) When the boomer surge subsided in 1980, inflation came down too. 'course, Volcker's 15+% rates didn't hurt I guess.

36. terriDeaner Follow Befriend (7) 70 threads 1,151 comments

    55   12:11am Mon 26 Sep 2011   Share   Quote   Permalink   Like   Dislike   Bellingham Bob says 'course, Volcker's 15+% rates didn't hurt I guess. Probably not!

37. Goatkick Follow Befriend 6 threads 101 comments Clarendon Hills, IL

    56   5:48am Mon 26 Sep 2011   Share   Quote   Permalink   Like   Dislike   as u guys can see..there will be pops in the down trend. $100 pop off todays bottom om GC and $4 pop of SI low Thats big money becareful That said its the internet and no ones ever loses $ Don't ever bet against getting your ass handed to you.

38. Goatkick Follow Befriend 6 threads 101 comments Clarendon Hills, IL

    57   5:54am Mon 26 Sep 2011   Share   Quote   Permalink   Like   Dislike   I look forward to rubbing salt into the 100% I'm certain calls here. GL

39. Goatkick Follow Befriend 6 threads 101 comments Clarendon Hills, IL

    58   11:24am Mon 26 Sep 2011   Share   Quote   Permalink   Like   Dislike   What you experts have day jobs ? :P Guess someone will show up when we head lower Silver almost $6 higher from recent low //only 30 k on a 1 lot SI contract be careful

40. Goatkick Follow Befriend 6 threads 101 comments Clarendon Hills, IL

    59   6:07am Tue 27 Sep 2011   Share   Quote   Permalink   Like   Dislike   Ok make that a $7 pop off mondays low in Silver. Iwog no comments at all ? Dare I say you only talk ur book ?

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