Hey Dudes! Looks like this grody correction might be ending and a tubular new bull leg might be upon us. It might be a good time to listen to the history rhyme before things get crazy again. Let’s take a trip back in time, shall we, to when the size of hairstyles and shoulder pads were growing to the max - as fast as the inflation rate (almost); when punk rock and new wave music set the tone for the new decade arriving: the 80s. Despite all of the fascinating and awesome social phenomena that was happening around us at that time, we’re going to take a focused peek at a very small sliver of that glorious era and look at what was happening with the price of silver.
Take a look at this chart, friends...
Behold the visual representation of the price of silver over a three-year period that occurred as we said goodbye to the 70s and hello to the 80s. Prior to this, the price of silver hardly budged, wallowing around the $1-$2 range for decades. We see some rise in price in the mid-70s when inflation appeared, or in other words when our dollar was declared to be just paper. Of course, I refer to what occurred on 15 August 1971, when then-president Nixon unilaterally ended the convertibility of the US$ to gold (read about the "Nixon Shock"). Our currency was no longer backed by the finite resource of gold which meant that our government could print dollars at will and spend till they could spend no more (and they are certainly doing that these days, no? Take a look at the chart again there. You think there’s any coincidence with that relatively recent monetary policy instituted in 1971, the more-than-doubling of the price of silver throughout the 70s, and that huge price spike at the end of the decade?
There is some debate about how high silver peaked back then. According to the chart, the closing prices reached the mid to low 40s, but the consensus high is around $50 and that’s a nice round number so we’ll use that. What actually caused the spike? There were the Hunt brothers, of course, but that probably just brought the silver story to light. There was the inflation fear and the rush to sound assets, as well. There was a ton of short covering – investors continually betting on the price crashing. “You knew it was going to crash sometime!” but for many that crash didn’t happen soon enough and found them buying back their silver at higher and higher prices. It was a full-fledged mania. Gold and silver were all over the news and the lines at your Local Coin Shop stretched sometimes as long as the gas lines.
Blast Off!
Let’s narrow the focus here for a moment and we’ll get to the point. Have a look at the chart again and focus in on the time period of December ’79 through February ’80. Notice the price action? The price had been rising steadily during 1979, starting the year at $6 and change. That steady rise turned into a price spike in September, doubling the price from around $9 to $18. After a short breather, we went from $17 to $50 in about two months. If you’ve been a reader of mine, you know that I’m expecting a similar run in the future, and I believe we’re building the base for that run right now. I am expecting at least another 10 bagger to the next peak, but what will be the base from where we’ll make that run? Will it be around the current $20? Higher? Lower? All three are possible, but one thing you can be sure of: once the mania phase hits, it’s going to move fast – and then it’s going to fall even faster.
And Your Point Is…?
Take one more look at the chart, please? (Last time, I promise.) We already mentioned how high and how fast price went up. Now look at the follow up – after a bit of a churn at the top, we plummeted to around $12. You do not want to be caught in that drop. When the mania hits there will astronomical forecasts and talk of limitless price increases. The price will be rising day after day, higher and higher. Stay focused, friends. Close your ears to the Siren Song. We've already experienced some impressive run ups and subsequent massive, record-breaking drops during our current bull market. You do not want to be caught in the drop. Sell a little as the price rises into a vertical slope. Sell a little each day if you can. If you’re out of silver and the price is still rising, congratulate yourself on making a huge profit on your investment. Pat yourself on the back and look forward to the next mania coming to an investment arena near you. Don’t be greedy, friends. Remember - You do not want to be caught in the drop.
Thanks for reading, everyone. Stop by and pay us a visit at http://tobuyandsellsilver.com. Our site is designed primarily for new investors to the silver market. We’ve got some fine reading on the site and in the pipeline.
Joe
PS- Check this out... Taken in summer ’81; joining the Air Force that day. Note copy of Doug Casey’s Crisis Investing (to read on the plane).
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