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Expect the Unexpected with Silver Price Spikes

Sunday, February 28, 2021

Unlike gold, silver is a precious metal with a greater reputation for its uses in industry. Although far cheaper than its yellow metal cousin, silver is an easier metal to acquire for many buyers specifically because its price is lower. This was especially noticeable in recent weeks, when an army of Reddit keyboard warriors helped trigger a stampede of demand.

Learn all about the different ways silver prices have spiked in the past, and how this could benefit you in the future.

Silver Thursday

Perhaps one of the most highly-publicised spikes in the price of silver happened in 1980, during an event that has since come to be known as Silver Thursday. During the 1970s, the US dollar began to float freely as a fiat currency, after President Richard Nixon ended the Bretton Woods system, and the gold standard which pegged the Dollar to gold.

A decade of double-digit inflation ensued, with policy makers scrambling to find the right policy prescription to cope with crashing currencies, stock markets and an eroded pool of savings. Gold and silver proved to be a safe store of wealth during the 1970s, with both metals moving up in tandem. However, where gold went, silver went that bit further.

As an annual average, an ounce of silver was worth just £5 in 1979. At its peak in January 1980, silver prices rose to an all-time high of £21 per ounce. Most of this rapid price appreciation occurred in the space of just three months. The Hunt brothers, sons of a wealthy oil tycoon, spent much of their inheritance on physical silver and futures contracts.

By 1980, the brothers had effectively cornered the market, performing what investors call a short squeeze. As prices soared, anyone with a bit of silver was keen to sell what little they had, to cash in on the bull market. In many cases, this silver ended up with the Hunt brothers, simply increasing their hold over the silver markets, worth billions of dollars.

That all changed in March 1980. At this time, the US Government had taken notice of this market manipulation, opting to cut investors off from further long positions. The result was an enormous collapse in silver prices, bursting the bubble.

The return of silver

The collapse in 1980 was followed by a bear market in silver, lasting until 2001. For 21 years, anyone with a bit of silver struggled to make gains to justify a sale. However, all was not lost and all that was required was a bit of patience. By 2001, the US Dollar was peaking, while emerging markets were starting to boom. This shift in the balance of economic might caused commodity prices to surge, as part of a new commodity super-cycle. Oil, copper, gold and silver all rallied for a decade, as investors bet on an inflation trade. The price of silver experienced a particularly strong performance between 2008-11, as the US and European countries created billions of dollars and Euros to buy up government bonds through quantitative easing.

This attempt to debase currencies helped push precious metals to a new all-time high, aided in some part by a new viral online campaign, spearheaded by Max Keiser, a presenter on Russian state-sponsored broadcaster RT. The campaign, dubbed Crash JP Morgan, Buy Silver, proposed that members of the public should buy up as much silver as they could manage, in an effort to damage JP Morgan’s sizable short position in silver.

Prices spiked until May 2011, when a global slowdown began in earnest. It’s important to be mindful of the fact that, unlike gold, silver is a more industrial metal, so it is more prone to volatile swings in line with the performance of industrial production in countries such as the US and China.

Reddit strikes out for silver

Almost a decade after the last major peak in prices, a group of savvy Reddit users using the forum r/wallstreetbets got wind of hedge funds holding sizable short positions in stocks for companies such as GameStop. Within hours, hundreds of shares were bought, pushing up the company’s price. Mere days later, their tactics shifted.

Attention moved to silver, where a number of hedge funds continue to hold short positions. In just three trading days, the Gold Bullion Company watched as silver prices spiked by 20 per cent. In the space of 24 hours, we received orders for silver at a rate that we typically expect to see over an entire three-week period.

While the spike was short-lived, it caught many off-guard, and demonstrates the power of internet forums in driving up silver prices in next to no time at all. We can’t all be the Hunt brothers, but as the Redditors have shown, markets can move very quickly, and anyone with a bit of silver can make a sizable amount, if they time it with respect to any price rally that should follow.

Looking for the next spike

It’s impossible for us to know how and when the next price spike could occur. Markets are increasingly digitised, so money flows in and out of assets with increasing rapidity. What we can say is that, when silver bull runs get underway, they tend to last a decade at the very least, and most of the greatest gains can be made in as little as the last three months before the peak.

Prices may have settled back down to lows after the Reddit surge, and may stay static for some time, but like clockwork, the time may come when prices get that much-needed momentum to propel them to new all-time highs in the coming years. All it takes is a bit of patience and building up a healthy bit of interest in buying silver.

While it’s not possible to corner the silver market, as the Hunt brothers did, the Gold Bullion Company can facilitate sales of high-end silver products, including stored silver that is free from VAT. For more information about buying silver, give us a call on 01902 623 259, and we’ll be happy to help answer any questions you may have.