The fall and rise of silver – MoneyWeek

Backthen,theCOMEXwasthemostexpensiveseatonthetradingfloor,andalsothemostprestigious。

Backintheday,thetradingbadgesweregreen,cottonwasorangeandtherarelyseengold-colouredbadgemeantyoucouldtradeonanymarketonthefloor,fromcoffeetocottonandfromcrudeoiltoorangejuice。

TheNYMEXwasstillfairlynewandnotascoveted,andNYMEXbadgeswereyellow。

Anyway,ImademywayuptothefifthflooroftheWorldTradeCentre。

Iwasdressedinasuitandtie,anditwasprettymuchthefirstandlasttime,atleastonthetradingfloor。

AsIgotmytemporarysecuritybadge,Ipeeredoutontothevasttradingfloor。

Itwascompletelydarkandsilent。

Butitwouldntremainthatwayforlong。

Ihadarrivedaround6am,beforetheexchangecametolife。

SoIwalkedaroundthefloorinrelativedarkness,lookingattheglowingoldterminals,watchingtheoldclackboardsonthewallsassomeofthemchangedwiththenightmarkets。

Andthedistinctivesoundofallofthetimestampsonthefloorsnappingatoncewithabigthwumpatthehalf-hourmark。

Thefloorwascarpetedandwithoutascrapofpaperonitnotsomuchasapaperclip。

Theceilingssoaredthreestoriesintheair,andthetradingpitswereraisedabovethefloor。

IknewtheminuteIwalkedaroundtheoldexchangeIwashome。

Oneofmyfavouritestoriesfromtheold-timersonthefloorwasthestoryoftheHuntBrothersSilverMarketDebacle。

IwillsharewithyouthehistoryoftheseeventsastoldtomebackthenbyCOMEX(theformerGoldExchange)members,tradersandold-timersinmyfirstweeksofworkingonthefloor。

Inthelate1970s,twoTexasoilbaronswithnoshortageofmoneyorgutsmovedtocornertheworldssilvermarket。

WilliamHerbertHuntandNelsonBunkerHunthadbeenaccumulatingsilverforyears,andtheonlywaytheycouldmaketheirschemeworkwastopartnerwithsomewealthyArabs。

Atfirst,theirtimingseemedbrilliant。

TheHuntBrothershadhitagusher,sotospeak,whenthepricejumpedin1973from$1。

95perozto$5in1979。

Duringthatcriticalsix-yearperiod,theHuntBrothershadamassedtheequivalentofapproximatelyhalftheworldsdeliverablecache。

Theyalsomanagedtohelpdrivethepriceevenfurthertoabove$54peroz。

ByMarch1980,justwhentheHuntBrothersweresittingpretty,theFederalReservepulledtherugoutfromunderthembychangingimportantCOMEXtradingrules。

Suddenly,silverplunged50%onMarch27,1980adaythatwillliveforeverintheheartsofustraders。

Thehigh-flyingHuntBrothershadcrashedbigtime。

TheybecameoneofthebiggestbankruptciesinUShistory。

Andasifendingupthepoorhousewasntsufficientpunishment,theywentfurtherdowntheroadtothebighouse,tooaftertheirconvictionofconspiringtomanipulatethemarket。

WhileitcertainlywastheendoftheHuntBoys,thatwasntnecessarilytheendofsilver。

AftertheHuntdebacle,silverfellintoadeepsleepfallingtoabout$3。

50inthe1990s。

Ittookalongsnoozeinthatpricerange,withtheexceptionofabriefspiketothe$7。

50rangein1998whenWarrenBuffetstartedaccumulatingit。

Duringthoseyears,probablytheonlythingmoreboringthantradingsilverwaswatchingwaterboil。

Thensomethingcuriousstartedtohappen

AfterbottomingoutinNovember2001at$4。

06,silverwokeupsoaring63%tothe$6。

60range。

Therisewasparticularlyinterestingwhencomparedtogold,whichitselfhasrisen80%fromthedepthsofFebruary2001。

Thedifferencewasthatgoldisaworldcurrency,andsilverisnot。

Goldspriceisinfluencedbycurrencymarkets,whilesilversisdrivenstrictlybysupplyanddemand。

Asaresult,therearethreeprimarymarketsforsilver:

*Theornamentalmarketservesjewelleryandsilverware;*Aninvestorsegmentconcernssilverbarsandcoins;*Andtheindustrialpartincludesphotographicfilmandpaper,computercomponents,brazingalloys,pharmaceuticalsandalternativeenergyapplications。

Whatworksinyourfavouristhatfewpeopleknowthattheindustrialsectoristhebiggestforsilver,whiletheinvestorsegmentisthesmallest。

Thebiggestdilemmaandopportunityforspeculatorsisthatsilverisgettingtobeveryhardtofind。

ThefactofthematterisUSgovernmentsuppliesarelonggoneandtheynowneedtopurchasesilverjusttomeetdemandforcoinandbars。

Centralbankssoldoutmostoftheirsupplyofsilveraspriceslanguished。

Someultra-wealthyinvestorssuchasWarrenBuffett,GeorgeSoros(throughApexSilver)andBillGates(throughPanAmericanSilver)havetakenonsignificantsilverpositions。

Ihardlythinkthatanyofthesewell-knowninvestorsmightbethenextHuntbrothers,butmorelikelythesemastersofwealthseeaprofitabletradeinhavingmajorpositionsinsilverwhereothersdont。

Themoralofthestory?

SilverhasbeenundervaluedforfartoolongandnowseemstobehavingarebirthforsmartinvestorswhoonlyknowthestoryoftheHuntbrothersassomethingthathappenedalongtimeago。

Thehappyendingmaybeforthoseinvestorswhoarebuyingsilverattheselevels;theyjustmayenduplivinghappilyeverafter,afterall。

ByKevinKerrforTheDailyReckoning

With15yearsofexperience,KevinKerrisatrueveteranofthecommoditiesmarkets。

Alicensedcommoditiestradersince1989,hesworkedthetradingpitsinChicago,NewYorkandLondonwithlegendslikePaulTudorJones。

OverKevinKerrscareerhesdealtwitheverythingfromcottontocurrenciestooil,naturalgas,andcommoditiesderivatives。

With15yearsofexperience,KevinKerrisatrueveteranofthecommoditiesmarkets。

Alicensedcommoditiestradersince1989,hesworkedthetradingpitsinChicago,NewYorkandLondonwithlegendslikePaulTudorJones。

OverKevinKerrscareerhesdealtwitheverythingfromcottontocurrenciestooil,naturalgas,andcommoditiesderivatives。

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