Jeff Berwick

We buy gold and silver as a way to protect ourselves from the TEOMSAWKI (The End Of The Monetary System As We Know It) to come.

We live in a literal financial house of cards. It is all paper. That house of cards has been in the process of collapsing since 2008. Astute market participants realize this and are buying bullion, one of the only financial assets with no counterparty risk, as a way to protect themselves from the coming storm.

Silver has more than doubled since Ben Bernanke began his high level terrorist attacks against the US dollar with “Quantitative Easing II,” announced in August of last year. Silver jumped from $18 to nearly $50.

The rise in gold and silver was likely making Bernanke feel a bit uncomfortable about his “there is no inflation” story and a phone call was likely put into the COMEX. Five margin increases in rapid succession later, and the COMEX had increased initial margin requirements by a substantial 84%.

Therefore, anyone who had purchased silver futures using leverage was forced to pony up a lot more cash to maintain the position…or sell out. Since many participants lacked the necessary cash, they were forced to immediately sell their silver futures. The result was a drop in silver futures prices from near $49 to below $34 in a matter of days.

This volatile rise and fall in silver has most of the world saying that silver was in a bubble and now that bubble has popped. Those who say this don’t know what a bubble is.

If you look at the silver price in US dollar terms, its recent spike does look quite parabolic, or bubble-like. However, in the context of a longer-term timeframe, silver’s recent run-up doesn’t seem bubble-like at all.

Check out the chart below, which details the price increase of various items since 1980. Can you spot which one of these items is in a bubble? Hint: It is not silver!

Nominal Price Change of Various Assets, 1980-210

In nominal dollar terms, silver’s recent rally looks parabolic and unsustainable. But when compared to other assets over the last thirty years, silver has been in a very long bear market and has done relatively nothing compared to any other assets.

And compared to the growth in US Federal Government debt, silver has underperformed by a factor of five. One bubble is about to pop… and it isn’t silver.

Regards,

Jeff Berwick,
for The Daily Reckoning

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Jeff Berwick

Jeff Berwick, a self-described financial freedom fighter, is the founder of Canada's largest financial website, Stockhouse.com.  He now writes the libertarian, Austrian-economics based newsletter, The Dollar Vigilante and is a regular speaker at many of the world's most important investment, resource and freedom-focused conferences where he is known as the most dangerous man in finance.