With silver breaking out of its March 24 high of $38.14, precious metals expert James Turk believes the silver price could assault the all-time futures market high set in Jan. 1980 of $50.35 per Troy ounce.
Turk, founder and president of bullion storage service Goldmoney.com, told King World News he’s surprised that the latest 40% surge since late January in the price of silver to the $38 level hasn’t normalized the futures chain from its highly unusual backwardation trade.
“We’re now at a record backwardation in silver in terms of length of time,” told KWN’s Eric King. “I think what we need to do is compare what is happening now to 2009 when silver was in backwardation the last time. Over a period of just about two months silver rose 40% from approximately $10 to $14, and that rise in price eliminated the backwardation.”
In fact, silver futures have traded in backwardation for a record length of time during the latest run from the $27 level – an anomalous event which strongly suggests that price needs to clear much higher in order to take the futures chain back to a normal contango trade, he said.
“But here is the really stunning thing this time Eric, we’ve gone from $27 to over $37, again about a 40% rise in price and the backwardation is still there,” said Turk. “It hasn’t disappeared. So what that suggests to me is that there is tremendous physical demand for silver. This is a very, very rare event and it’s very bullish.”
Yahoo Finance reports that the April 11, 2011, contract closed Friday on the Comex at $38.42, whereas the Dec. 15, 2015 contract closed at $37.10 – a backwardation of $1.32 to the current contract. Silver for May delivery settled at $38.46.
Multiple sources suggest that the vast majority of demand for silver isn’t coming from retail investors in America this time. Unlike the previous super bull market in silver of the 1970s, a decade when demand for silver came from American and European buyers seeking a hedge against a declining U.S. dollar, the source of soaring demand today, so far, can be traced to Asia, especially China and India.
Thomas Coughlin, chief investment officer at venture capital firm TRAC Financial, told an Aussie newspaper The Australian on Wednesday, “The Chinese are starting to panic about their lack of gold reserves and currency’s hard-asset backing, so they’re buying gold.”
He added, “Among their populations, demand for gold and silver bullion is exploding. Investors in China and India have never trusted paper investments as a store of value. They’re busy converting their hard-earned paper money into gold and silver bullion.”
With combined populations of 2.4 billion people (four-times the combined populations of the United States and European Union) the potential wave of buying from a gigantic upwardly mobile populations of both China and India is difficult to assess, according to Turk.
“Maybe the backwardation will disappear at 40 bucks, but who knows? Turk wondered. “Maybe the backwardation is still going to be there at $45 or $50 which is the target that I’ve been looking for this year. If that happens, it’s impossible to predict, but if that happens that’s going to be an earthshaking event.”
3 Silver Stocks on the Move
Silver Wheaton Corp. (NYSE: SLW)
Pan American Silver Corp. (Nasdaq: PAAS)
Coeur d’Alene Mines Corp. (NYSE: CDE)
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