posted on Apr, 15 2011 @ 05:04 PM
Silver futures surged today to a new 31-year high of $42.80 per ounce.. All we need is for silver to rise by another 15.5% and silver will reach its
all time high set in 1980 of $49.45 per ounce.
Silver's high of $49.45 per ounce in 1980 would equal about $140 per ounce in today's dollars adjusted to the consumer price index and about $400
per ounce in today's dollars adjusted to the real rate of price inflation. Despite silver's huge gains in recent months, we have yet to see silver
rise by $2 or more in a single day. When we start to see a true "silver mania" with investors around the world rushing out of their U.S. dollars and
panic buying silver, we can expect to see silver gain by $5 to $10 in a single day on more than one occasion.
Back in February of last year when silver dipped to below $15 per ounce.
Yet recent gains in the price of silver have surpassed short-term expectations. The gold/silver ratio is now down to 35 and we could see it decline to
at least 16 this decade, and possibly as low as 10.
The artificially high gold/silver ratio of the past century will be looked back at as an anomaly caused by the silver price suppression scheme of the
Federal Reserve, which was in cahoots with Bear Stearns and now JP Morgan. The Federal Reserve chose to bail out Bear Stearns and not Lehman Brothers,
because Bear Stearns was the holder of a massive naked short position in silver that they were on the verge of being forced to cover.
It is not a coincidence that Bear Stearns failed on the very day silver reached its then multi-decade high of $21 per ounce. Bear Stearns was on the
verge of being forced to cover their naked short position, which could have sent silver from $21 per ounce to $50 per ounce overnight. By bailing out
Bear Stearns and allowing JP Morgan to acquire Bear Stearns' assets with the promise to cover any losses derived from them, JP Morgan was able to
continue managing the silver short position and orchestrate a manipulative take down in 2008 from $21 per ounce down to $8 per ounce.
Only ten times more silver has been produced in world history than gold and from the years 1000 to 1873, a period of 873 years, the gold/silver ratio
remained between 10 and 16. In fact, the Coinage Act of 1834 defined a gold/silver ratio of 16. The gold/silver ratio started to rise after silver was
demonetized in 1873. Despite silver being demonetized, we saw the gold/silver ratio return to 16 on three occasions during the past century: in 1919,
1968, and 1980.
It was only ten months ago in June of 2010 that the gold/silver ratio was 70. With the gold/silver ratio now at 35.
Should the gold/silver ratio decline to at least 16 within the next few years, and that will mean those with silver will once again more than double
their purchasing power. Considering that the gold/silver ratio overshot to the upside and was as high as 100 in 1991, we could expect it to
overcorrect to the downside and possibly reach a low of 10 this decade. That would mean a more than tripling of ones purchasing power from the current
ratio of 35.
When silver rose to $49.45 per ounce in 1980, the government said that the rise was due to the Hunt brothers "cornering" the silver market. The
truth is, silver reached $49.45 in 1980 due to the massive inflation that was created by the U.S. government during the 1970s, and the Hunt brothers
were used as a scapegoat. The Hunt brothers were accumulating silver in order to protect themselves from a collapsing U.S. dollar.
When the Hunt brothers were accused by the U.S. government of "cornering" the silver market and trying to manipulate silver prices higher, they only
owned a concentrated long position of approximately 100 million ounces of silver. JP Morgan today has a concentrated naked short position in silver of
approximately 122.5 million ounces, but the U.S. government doesn't seem to have any problem with it.
The problem with the Hunt brothers' strategy of accumulating such a large concentrated long position in silver is that after silver prices rose,
their position was simply too large for them to ever sell without causing silver prices to crash. With silver reaching $49.45 per ounce in early 1980,
the world was about to lose confidence in the U.S. dollar, which would have caused an outbreak of hyperinflation. In a desperate attempt to save the
U.S. dollar and prevent hyperinflation, the CBOT raised margin requirements and limited traders' positions to only 3 million ounces of silver
futures. The COMEX also limited traders' positions to 10 million ounces of silver futures. Not only that, but the COMEX and CBOT only had a total of
120 million ounces of silver in inventory, and the COMEX was likely going to default from futures contract holders requesting physical delivery. The
COMEX was forced to go into "liquidation only" mode, ending all silver futures contract buying.
Combined with the Federal Reserve rapidly rising interest rates, silver prices began to plunge and the Hunt brothers were hit with massive margin
calls. On one single day in March of 1980 when the Hunt brothers were forced to liquidate a large part of their position, silver lost 1/3 of its
value, declining by over $5 to $10.80 per ounce. That represented a total decline of 78% from its high two months earlier.
Is it the time to sell silver, and if silver could crash by 78% once again like it did in 1980?
The fact is, while the Hunt brothers' 100 million ounce concentrated silver position was on the LONG side, JP Morgan's 122.5 million ounce
concentrated silver position is on the SHORT side.