Silver Mania, or Different This Time?
A subscriber sent me a link to this article, which I found very informative:
Silver Mania and the Predictable Bust
If you have interest in silver, it is a good read for its historical summary (especially regarding the Hunt Brothers). While the author agrees that the fundamentals for silver are strong, he believes a bust similar to 1980 and 2011 is in the offing.
The bust would come at the hands not of deteriorating fundamentals, but instead at the hands of something like Silver Rule 7, which was a severe restriction on using leverage to purchase silver futures. In combination with Volcker’s interest rate regime in the late 1970s, silver was cooked and the upward spike reversed terribly, bankrupting the Brothers and sending silver into a 20+ year bear market.
In 2009-2011 the silver price reacted to the immense inflationary fire hoses employed by Bernanke and friends [editorial comment: to fight the flames of the incinerating bubble that the Fed was primary in creating], zooming back up to the old Hunt Brothers’ high around 50. CME raised margin requirements until silver finally cracked into another bear market lasting about 9 years. CME instituted the first 10% margin requirement just this month. Are there more to follow? If silver continues parabolic, I would not bet against it.
Neither of these price highs had much to do with fundamentals (although Volcker’s relentless interest rate hikes could be considered an antagonistic fundamental development). They had to do with actions taken by a trading authority limiting margin and leverage, which was driving the silver price.
My view? People who claim silver is the victim of evil and manipulative forces are harvesting eyeballs and followers, and they are half right. But they are half wrong as well in not advising that silver was played and leveraged in the 1970s by the Brothers, and in 2011 by rampant speculation driven by leverage into 2011. Leverage is almost by definition, manipulation. It drives an asset price harder than if left to normal market devices.
Regardless of whether we are right or wrong about the new macro being silver-positive, fundamentally (which I believe it is), the mechanics of trading its price are a whole different animal. CME, Comex, the government itself? Some combination? Someone is likely to decide that it is time to control the silver price and when that happens, we’ll get the anticipated silver top/reversal/decline at least, or a new bear market at most.
I believe in taking things a step at a time. A reversal and decline is what we are on alert for as we enter 2026. Then we’ll evaluate the prevailing macro factors, along with micro factors like official and/or institutional price control actions.
For now, nothing has changed. Silver is on a hysterical and parabolic move, and the Gold/Silver ratio’s downside extreme indicates a coming end to the move. It could happen tomorrow or next week or in January or February. It could happen above $100/oz. or right here at $79. But it is very likely coming.
Precious Metals
So the usual suspects are finally right about silver, and they are in full tout. Maybe it’s different this time, and vindication will finally be theirs. Or maybe the play is going to blow out again. All I know is that for the very long-term, I prefer gold. Always have. Always will.
The Gold/Silver ratio is dive-bombing amid the growing hype, momentum and FOMO. Wouldn’t you know that the GSR dropped all the way to target last week. It’s not a stop sign, but with 3 days left to official Santa silly season, I am viewing risk in silver to be quite substantial.
Understand also that if the GSR bottoms and turns upward, it will probably do so with the prices of both metals in decline, nominally. Ever since we identified silver as a potential leader back in April, it has been just that. Its leadership, when this move ends, will very likely be to the downside. It’s simple balance.
Meanwhile, I ended the week holding positions, and resisting temptations to hedge (or simply short silver for the sport of it) just yet. But the view remains that…
- The precious metals, led by silver, have been leaders of the broad market rally since the spring.
- That means the gold miners are not special, as they would be in a disinflationary, counter-cyclical macro.
- With the macro signaling “inflation” on the bigger picture, global tension galore and increasing strategic focus on critical minerals, interest in the wider commodity/resources trades continues to be a theme for 2026.
- But first – and as we’ve noted over the last few months of rally activity – the Gold/Silver ratio’s extreme has us aware of the potential for an interim liquidity event prior to the anticipated 2026 “inflation trades” really getting going.
I am not including more charts because we know the story, silver is massively overbought. Gold is very overbought. HUI, GDX, SIL, etc. all overbought. Even the likes of a laggard like royalty play ELE, as highlighted in a Dec. 19th NFTRH+ update as a prospective buy, has taken off.
We know the situation. Overbought, at risk, and… still bullish.
But the Inflation is (likely) Coming
I don’t say it. Even putting aside our Continuum chart and its implied macro-inflationary signaling…
…Trump plans to install a USD-devaluing yes man at the Fed. This on top of all the other yes men and women he has installed in his made for TV cabinet. Trump, in his constant demands for a dovish Fed, demands inflation. Trump, in his desire for total control of formerly “independent” institutions, will probably try to make the Fed his hand puppet. That would put a megalomaniac who’s slipping a few gears at the controls of the inflation-making machinery.
The Fed has announced the end of Quant Tightening and is engineering a form of Quant Easing involving short-term Treasury bonds, while ignoring MBS. I am not a professional Fed/bond market watcher and make no pretense of knowing how this will play out in terms of inflation.
For example, will continued weakness in the mortgage market and a resulting continued decline in home prices bring a deflationary input into the picture? Taking it further, would such a thing provide cover for more inflationary actions by the dovish 2026 Fed, which will be itching to find reason to cut rates and spew QE?
As you can see, there are a lot of moving parts and you could extrapolate more theories than the ones I’ve just put forth above. As a result, it’s further reason why we may expect both deflation (interim scare) and inflation in 2026. To say the least, I plan to keep our week-to-week, month-to-month analysis regimen in good working order. It’s not a time for predictions. It’s a time for being aligned with a macro that may present varying conditions at different times.
While the Fed is very likely to buy Treasuries (starting with bills) it has been reducing its MBS by letting them roll off the balance sheet over time and obviously, not buying new MBS. This, despite the weakening real estate sector (housing and commercial).
As you can see, the Fed bailed the hell out of the mortgage markets in 2009 and 2020. A graph of Treasury bonds held by the Fed would look somewhat similar. It was all inflationary hands on deck. This time, the intention is to let this garbage fend for itself and eventually come off the books.
So, in keeping with our “new macro, new rules” theme, this too is different from the past. My question is how will the macro play out and in what sequence. More inflation trades now (continuing what we have in progress)? Or inflation trades later, after an interim liquidity event?
As you know, and as per the extreme developing in the Gold/Silver ratio, the favored theme is “interim liquidity event”. From that, perhaps a great opportunity to once again buy the inflation trades may manifest in 2026.
The above is the favored 2026 game plan. Not a prediction, for the obvious reasons that I don’t make predictions and there are macro crosscurrents in play, per the above.
Stock Markets
What of the S&P 500, the major beneficiary of the Bernanke/post-Bernanke monetary era? Well, it sports a somewhat bullish pattern as it ticks a new high. There is a measured target of 7400, and there is the same ticking timer on Santa season that silver, the precious metals and the “inflation trades” may be subject to.
Taking out all of the noise, the daily chart of SPX is bullish, and it appears to have some head room by RSI and MACD. It is possible that the leaders (precious metals, led by silver) could top and reverse first while this pig keeps going, to follow later. But as with the precious metals, the TA is bullish. It’s just that the stock market is not nearly as overbought.
The leadership chain has been getting volatile, but its positive leadership trends are intact.
The XLV/SPY ratio is undecided as to the next move (risk-on or risk-off).
Taken together, the two charts above paint an internal picture that is neither bullish nor bearish. But the major trends in these indicators favor the bulls.
Market Sentiment
Taken at face value, smart/dumb money is contrary bearish (especially in nose-diving smart money) with a little wiggle room for more bull over the next few days. That almost seems too perfect a fit with our year-end view. Like, too obvious. The same goes for the dive-bombing (to target) Gold/Silver ratio, by the way.
Fear/Greed index has ticked up to “Greed”…
…with a note that they are flat out wrong in their volatility component, calling this “Neutral”. This is “Extreme Greed” with the VIX at lows not seen since last December, before the markets fell apart in February.
As a companion indicator to the VIX, also showing complacency by investors, High Yield spreads are sound asleep. Risk is severely “on” and that implies risk of reversal. Investors are way over-confident.
Mid-February is the time when markets have historically tended to turn volatile after a bullish January. Given the over-bullishness and over-confidence above, it looks like a decent bet that the bulls will be taken to the woodshed within the next 2 months. From the entry above: “before the markets fell apart in February.” Could it happen again? Seems overly obvious, but the indications point that way.
AAII has backed off a bit, also permissive for short-term market upside and as yet, no sign of an all-in knee jerk. Not that that necessarily has to happen, although it would be a handy “out of the pool!” indicator.
NAAIM is also in the realm of solidly over-bullish with a tiny bit of wiggle room that seems to rhyme with our year-end theme.
Market sentiment is over-bullish, with just a hint of daylight that could literally last the final 3 days of our projected year-end rally. It does seem too obvious now that so many indicators are pointing to December 31st. But I should not argue when a theme is projected and then it actually happens (or will happen, if this week is positive for markets).
Frankly, when considering the sum of other markets, it has already happened and speaking personally, I may be being greedy in not doing some selling just yet. January is usually positive for the stock market. So we can also consider a potential bull view out to mid-February. Personally, I would love to see a big upside expression (broad markets, inclusive of all sectors) this week to do some selling into. But again, week-to-week for me.
USD, Global Markets & BTCUSD… and Yen?
Yet now we come back around to Trump, the Fed and what appears to be liquidity operations (including Fed Funds cuts) under way. The implication is more headwinds coming for USD amid an official regime of currency devaluation. As it stands currently, USD is trying to find support. But it is below the downtrending SMA 200 (orange) and the converged SMA 50, which are just above clear resistance.
If USD takes out 99.15 we can talk bounce/rally. Until then it is technically bearish.
How can Uncle Buck fight this? Maybe he can’t. But maybe he can. If the Gold/Silver ratio (GSR) reverses and if that reversal brings liquidity pressure, then we may see the 2 Horsemen of the liquidity apocalypse riding again. Or in line with our theme, an apocalypse-lite that serves as a trigger for coming balls out inflationary operations. Again, lotta balls in the air and I’m just spit ballin’ some possibilities for now.
But as for the GSR’s fellow rider, I still see USD as a currency-based beneficiary of a market liquidity event. I don’t think the Euro would play that role.
Another consideration? With yields ramping upward in Japan, there is talk of a Yen carry trade unwind. That would force speculators to buy Yen. That could well be part of a global liquidity event. So I would include the possibility that GSR’s fellow rider could turn out to be the Yen, while USD continues bearish. New macro and all…
If you think USD has been bearish, check out the Yen (JPY/USD). Being long Yen could very well be a way to be bearish on stocks and other asset classes in 2026. Food for thought. If rising Japan yields eventually break the carry trades and support the Yen, things gonna get mighty interesting in ’26. And not in a bullish way.
I have not taken on many global stock positions because I see closer to home better and because I have not gotten a clear “global over US” signal (yet). If USD were to break down again, ACWX/SPY may finally break up and out. If the macro swings to a liquidity problem, USD could firm and I would not be interested stocks (or commodities) in general. But global could break down vs. the USS Good Ship Lollipop.
Frankly, in light of the Yen analysis above, I have less interest in the USD-related implications for US vs. global stocks. I am interested generally, however, in global vs. US in light of America’s “great again” jingle.
Meanwhile, though the Cup’s target has long-since been registered, I have not given up on BTCUSD’s potential to form a low and rally hard from current levels. That could put in a 5th post-Cup bull cycle high above 126,272. I am keeping BITO at the ready on the watch list. Obviously, a break below the previous low of 80,537 kills the play.
Commodities
I sold silver too soon (PSLV, I have a few actual rounds kicking around). I sold platinum/palladium (SPPP) too soon. I don’t care because I refuse to FOMO at a time of potential change. I made good profits and that’s not a bad thing. Only greed can make one start to think like that.
The 2026 view currently features commodities as a ‘go-to’. If we are to believe that the big rally in most everything going on right now is real and will not be interrupted by an “interim” liquidity event, the play may have already started. Indeed, it probably has already started, with so many critical/specialty commodities and related stocks taking off like, and sometimes crashing (after their fuel is spent) like, bottle rockets.
But the all-inclusive year-end party is a concern. Will stocks correct or enter a bear while commodities just continue higher? Unlikely, in the interim. But I am going to remain open-minded. I could well be wrong to anticipate an interim liquidity event (if somehow the Gold/Silver ratio, USD and/or Yen Carry do not play out as anticipated). But there is enough evidence now to anticipate, if not expect, some bearish stuff across the broad markets in the coming weeks/months.
A valid question may be whether a negative market liquidity event (e.g. Yen Carry unwind or some other unexpected problem) can overpower policymakers with direct instructions from Dear Leader to open the inflationary spigots.
2026 will be a long year. As they all are. Commodities are likely to be a special focus, but can we please finish the 2025 year-end play first? Then evaluate in January?
Portfolios
Gold is long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
In order of position size. See IRA notes below for the general theme here as well.
The taxable account carries high cash levels as long as cash and equivalents are paying out. This is considered a savings account of sorts, rather than a speculation or even investment vehicle. The goal is to speculate around the periphery. In another market phase (e.g. post-crash), the account may get much more in the game.
Trading Account
No positions.
Roth IRA (non-taxable, no contributions)
The chart took out the top of an Ascending Triangle. I am letting things run for a moment. But at any moment shall I take risk management action for any reason, including denial of my personal greed impulse. To a degree I am being greedy right along with a world full of other casino patrons.
Cash is 48% and paying less income, post-FOMC. Short-term Treasury bonds are at 29% and paying income. I want to explore various Treasury options for cash alternatives as the Fed cheapens money. Considering more short-term Treasuries along with short-term TIPs and eventually, longer-term TIPs.
Meanwhile, and for a day at least, I am holding favored items for the year-end rally theme. Gold stocks especially, with commodity/resource stocks and Tech (bull stocks) and on the more defensive side, Healthcare stocks.
Cash & income-generating Treasury bonds are at levels that are right for me and my real-world situation. Your situation is different. Cash will be adjusted as needed.
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