Silver superspikes: dollar-bullish, and they don’t last

First, the 25-year monthly chart:

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Here’s a chart that goes back further but only goes up to 2010 (I couldn’t figure out how to get barchart.com to draw me the whole thing, but you can just use your imagination – the line just goes straight up from $30 to $45):

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Gold’s march upwards has been much more orderly, but silver is a thin market and prone to spikes. These things are tough to short, and to attempt to do so you should wait for a pause and use a stop above the highs, but even with a stop a fast market like this could spike dollars in minutes or seconds and close you out at a big loss only to reverse. This chart doesn’t show the action that happened intraday one day in Jan 1980 when silver traded over $50 very briefly.  No reason why it couldn’t spike to $70 next week only to crash and languish at a new normal of $10-20 for the next two decades.

It is safer in a way to buy puts than to short SLV or sell futures, since your risk is defined – you can only lose what you put up. The July 35-strike puts on SLV were going for less than 60 cents on Wednesday, and will get cheaper every day until silver falls. June 35s are under 40 cents and will decay faster but pay off better in a crash. At any rate, I’d take a disciplined approach and figure on losing my premium at least once, buying higher strikes if the spike continues upwards. Losing the first premium or two would be acceptible if a later position pays off 10:1.

Take another look at this long-term dollar chart. We had a major bottom in 1980 just as everyone was panicking into precious metals.  Silver spikes are apparently another symptom of extremely negative dollar sentiment, so should be considered bullish for the currency.

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BTW, though gold’s price and action is much more sensible, the silver spike is very bad for gold as well – it may just have doomed its bull market. The metals have more than adjusted for the inflation of the last 30 years and the money printing of the last 3. It would make sense for their run to end soon and for them to settle into some middle ground. That doesn’t mean gold can’t touch 2500 and silver can’t hit 100 – it’s just that these moves are too fast and too high relative to their historic multiples to other assets, so these prices will not last.

Long-term gold charts (first one is a few weeks old – the second is current but doesn’t go back as far):