Do Not Go Gentle Into That Good Night
The most recent (and only) silver bull markets that led to prices reaching $50 were witnessed in 1980 and 2011:
- The First: 1980 Silver Bull Market
- Date: The 1980 silver bull market reached its peak on January 21, 1980.
During the late 1970s, there was a significant surge in silver prices primarily driven by inflationary concerns and geopolitical tensions. The 1980 silver bull market was heavily influenced by the events surrounding the Iranian Revolution and the ensuing Iran-Iraq War. These events led to oil price shocks and increased investor uncertainty, prompting them to seek safe-haven assets like gold and silver.
Investors, speculators, and institutional buyers flocked to silver, driving up demand and consequently raising prices. As a result, silver prices skyrocketed to an all-time high of $50 per ounce on January 21, 1980. That’s $185 in today’s inflation adjusted price.
The bull market, however, was short-lived. The Federal Reserve implemented measures to combat inflation, and silver prices began to decline rapidly soon after, entering a multi-year bear market.
- The Second: 2011 Silver Bull Market
- Date: The 2011 silver bull market reached its peak on April 25, 2011.
The 2011 silver bull market was fueled by several factors, including economic uncertainty, the global financial crisis, and growing investment demand. In the aftermath of the 2008 financial crisis, central banks around the world embarked on aggressive monetary easing policies, leading to concerns about currency devaluation and inflation.
Investors sought tangible assets like silver as a hedge against inflation and as a store of value. Additionally, the rise of exchange-traded funds (ETFs) made it easier for investors to gain exposure to silver, further increasing demand. As a result, silver prices surged, reaching a peak of $50 per ounce on April 25, 2011.
However, similar to the 1980 bull market, the 2011 silver rally was relatively short-lived. Concerns about global economic growth, margin requirements for silver futures, and a general market correction led to a sharp price decline. Silver entered a bear market, and prices gradually retreated over the following years.
It's important to note that while silver reached $50 in both instances, the underlying factors driving the bull markets were distinct. The 1980 bull market was primarily driven by geopolitical tensions and inflationary concerns, while the 2011 bull market was influenced by economic uncertainty and increased investment demand.
And the Third…
Here, in 2023, we’re looking at the perfect storm - dedollarization is putting the gold-standard for fiat currencies (The USD) at risk as it loses it’s status as a reserve currency, a medium of exchange, and a unit of account in the global economy. Inflation is heavily on the rise, and barring a significant demand destroying event, should continue. Tensions with Russia and China, both of whom are creating back-door currency deals, are on the rise. Lumber is plummeting - a portent of coming home price declines. And investment demand is skyrocketing.
Add to that a Silver deficit in 2022 of 240 million ounces, the largest in history, tightening gold fundamentals, and central banks around the globe accumulating at record paces to support the value of their fiat currencies, and you not only have safe-haven assets that preserve wealth, but also investment vehicles with unprecedented demand amidst rapidly tightening supplies.
This doesn’t include the rapidly growing demand for silver’s industrial applications, in particular, in solar panels. I’m not going to analyze supply / demand fundamentals here, but will add that silver’s industrial demand, on top of expected investment demand, is what could lead to a longer term, sustained bull market that doesn’t mirror the short-lived bull runs of the past.
So let’s dive a little deeper into the first of these bull markets, and see if we can’t learn anything of use for what’s to come.
On the Hunts | Wall Street Raiders Corner the Silver Market
The Hunt brothers, Nelson Bunker Hunt and William Herbert Hunt, attempted to corner the silver market in the late 1970s and early 1980s. They began accumulating silver in the early 1970s, believing that the price of silver would rise significantly due to increasing inflation and global economic uncertainty.
Let’s look at the steps they took to corner the silver market:
- Silver Accumulation: The Hunt brothers started acquiring physical silver in various forms, including bullion, coins, and futures contracts. They used their substantial financial resources, including profits from their oil business, to accumulate a significant amount of silver.
- Price Manipulation: As their holdings grew, the Hunt brothers sought to manipulate the price of silver upward. They utilized various strategies to achieve this, including buying massive quantities of silver futures contracts, which allowed them to control a large amount of silver without needing to physically possess it.
- Leveraged Positions: The Hunts took advantage of the commodities futures market's leverage, which allows investors to control large quantities of commodities with a relatively small amount of capital. By amassing a significant number of futures contracts, they were able to control a substantial portion of the silver market.
- Price Rally: The aggressive buying and limited supply of silver by the Hunt brothers drove up the price of the metal. As the price rose, other investors, speculators, and even some industrial users of silver became interested, leading to further increases in demand.
- Squeeze on Shorts: The Hunts' buying spree and the rising price of silver put pressure on those who had taken short positions on silver futures contracts. Short sellers had borrowed silver contracts, expecting the price to fall, but as it rose, they faced significant losses and were forced to cover their positions by purchasing silver at higher prices.
- Exchange Intervention: Concerned about the impact of the Hunt brothers' actions on the market, regulators and exchanges implemented measures to curb their influence. Exchange rules were modified, margin requirements were raised, and position limits were imposed to restrict their ability to continue cornering the market.
- Market Collapse: Despite their efforts, the Hunt brothers were unable to sustain their position in the face of regulatory intervention and mounting losses for short sellers. The price of silver eventually collapsed in March 1980, falling from nearly $50 per ounce to around $11 per ounce within a few weeks.
Now, you and I are unlikely candidates to raid the silver market as the Hunts did… but others might. Silver stocks are incredibly tight and there simply isn’t enough being produced to meet demand for years to come. When prices breach technical levels (shown below), accumulation (happening now) and manipulation (also happening now) will give way to explosive rallies and short squeezes that will prove too volatile to participate in if one isn’t already positioned.
You and I aren’t going to raid Wall Street. But we will ride the coattails of the powers that be, driven by frenzied fomo buying that has, and will again, blind investors to reason and motivate them to accumulate regardless of cost, until…
Until the market collapses. I have my doubts on this particular stage in the process, because macroeconomic circumstances and market fundamentals could lead to higher prices once and for all, but silver bulls have proven to be fickle. Each of the previous bull markets lasted less than one year once they got going, and collapsed with prejudice.
We’re unlikely to see $20 silver again in our lifetimes, once it breaches $30 and holds, but that doesn’t mean we can’t see nauseating corrections of 50% in the blink of an eye from prices much higher than we have now. This is one of the reasons I plan, at least with part of my portfolio, to trade, rather than buy and hold purely. Those drops will challenge even the most well-researched and battle-tested convictions to second guess their thesis.
Betting a little at key identifiable inflection points provides the greatest risk-reward in markets that fly high and fall hard. If wrong, you’re down a small sum. If right, you’re right with leverage on significant moves. More on that later.
Uranium is Explosive
The most recent uranium bull market occurred between 2004 and 2007. Let’s dissect it.
The uranium bull market began in 2004 and reached its peak in mid-2007, primarily driven by increasing global demand for nuclear power, supply constraints, and speculative interest in the commodity. Several factors contributed to the rise in uranium prices during this period:
- Growing Global Demand: As concerns about climate change and carbon emissions intensified, nuclear power emerged as a cleaner alternative to fossil fuels. Many countries, particularly in Asia, expressed interest in expanding their nuclear energy capacity to meet growing electricity demands and reduce reliance on carbon-intensive sources. The anticipation of increased demand for uranium, a key fuel for nuclear reactors, fueled investor optimism.
- Supply Constraints: The uranium market faced supply-side challenges during this period. The dismantling of the Soviet Union's nuclear arsenal resulted in a significant reduction in the supply of highly enriched uranium (HEU) from nuclear weapons. Additionally, production disruptions occurred in major uranium-producing countries like Canada and Australia, further tightening supply.
- Speculative Interest: The combination of rising demand and supply constraints attracted speculative interest from investors, including hedge funds and commodity-focused funds. Speculators began accumulating uranium inventories and driving up prices as they bet on the long-term growth potential of nuclear energy.
The uranium bull market reached its peak in mid-2007, with uranium prices soaring to all-time highs of approximately $130 per pound, representing a more than six-fold increase in just a few years. However, the market dynamics began to shift towards the end of 2007. Concerns about the global financial crisis, coupled with the impact of the Fukushima nuclear disaster in 2011, led to a decline in investor sentiment and a subsequent decrease in uranium prices.
Following the peak, uranium entered a bear market, characterized by a prolonged period of declining prices. The Fukushima incident resulted in increased scrutiny of nuclear power and stricter regulations, which further dampened demand for uranium.
It's worth noting that there have been sporadic periods of optimism and price rallies in the uranium market since then, driven by factors such as supply cuts, production curtailments, and growing interest in nuclear power in certain regions. But a sustained bull market comparable to the mid-2000s has yet to materialize.
Enter 2023 and beyond…
With the yellow metal being the only truly green energy source on planet earth to date, and global energy demand rising - with ongoing price inflation of fossil fuels, coal, and solar - “uranium prices must rise or the lights go out,” to quote the great Rick Rule.
Unlike other commodities, uranium prices are inelastic of demand, meaning that demand remains constant (or rises) even with changes in economic factors. This means uranium, unlike silver, can appreciate markedly, without a necessary collapse in prices due to waning demand.
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