Silver is trading at $45.06 an ounce this morning. That’s up from $23.12 six months ago, $32.30 just 60 days ago, and $36 a month ago.
Nobody knows where all this is going, but some folks expect the demand for silver and the berserk Federal Reserve policy of devaluing the dollar to push the price of silver as high as $250 an ounce. They’re also predicting that silver will out-perform gold by 400 percent.
As one of the investors who got burned by the “Silver Bubble” of the 1970s, I remain wary, but the dynamics of this market are significantly different than when the Hunt brothers of Texas tried to corner the silver market and ran the price up from $1.95 an ounce to $54 an ounce. A change in trading rules on the New York Metals Market and intervention by the Federal Reserve caused a collapse in the silver market, culminating in a 50 percent one-day decline on March 27, 1980, when the price dropped from $21.62 to $10.80.
What makes the 2011 silver boom different is the high demand for industrial silver, particularly in China, the relatively limited supply, and the wobbly U.S. dollar. If the dollar crashes, as some analysts worry, silver – particularly the old 90 percent silver U.S. coins – could become the hard currency of commerce in this country.
There is an historical precedent for the government confiscation of gold. Franklin Roosevelt did it by executive order shortly after he took office in 1933. There’s a provision requiring gold dealers to report their sales hidden in Obamacare, which could be a prelude to a similar measure in the near future. But silver, so far, is under the government radar and it looks like an ideal hedge against inflation.
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