As I predicted on August 8 and again on August 27, silver has experienced a hyperbolic price spike.
Since I alerted you just over a month ago, silver has rallied to $34 an ounce for a gain of 20.7%.
Back then, silver futures were in backwardation, a price anomaly that sees the current cash spot price higher than distant contracts.
Backwardation is indicative of two things:
1) There’s a current shortage of available physical silver on the market; and
2) owners of silver are hoarding, expecting a rally.
This has happened.
Last Friday gold and silver experienced a hyperbolic price spike.
Take a look:
Since August 8, gold has jumped 130 points — or 8%.
And as I stated above, silver is up nearly 21%.
With these sudden, huge moves in such a short period of time, it’s technically natural that a pullback is on the horizon...
But the fundamental picture supports much higher precious metals prices.
You see, late last week the European Central Bank (ECB) announced what is essentially a European bailout of its sovereign debt crisis.
Reuters reported Thursday:
The European Central Bank agreed on Thursday to launch a new and potentially unlimited bond-buying program to lower struggling euro zone countries' borrowing costs and draw a line under the debt crisis.
Seeking to back up his July pledge to do whatever it takes to preserve the euro, ECB President Mario Draghi said the new plan, aimed at the secondary market, would address bond market distortions and "unfounded" fears of investors about the survival of the euro.
What had gold and silver traders rushing into the metals on Friday was the word “unlimited.”
This means the European Central Bank is warming up its own printing press.
This is highly inflationary — and very bullish for tangible asset prices.
But this fire's just heating up...
At the same time the ECB was announcing its own U.S. Fed-style bailout program, China was announcing its plan to get its economy growing.
Last week China announced its approved plans to build 2,018 kilometers (1,254 miles) of roads, nine sewage treatment plants, five port and warehouse projects, and two waterway upgrades.
This spurred the biggest stock market rally in China in almost eight months on signs the government is stepping up stimulus efforts to revive economic growth.
What this means is the Chinese government is about to spend à la Kenyesian economics...
Recently we learned legendary investors George Soros and John Paulson have taken significant positions in gold.
But gold isn’t a safety asset reserved for high-profiled hedge fund managers.
Dictators love it, too.
According to the World Gold Council, Russia has more than doubled its gold reserves in the past five years.
In fact Vladimir Putin has taken advantage of the financial crisis to build the world’s fifth-biggest gold pile in a handful of years — and he's buying about half a billion dollars’ worth every month.
Read that again: Putin is buying $500 million worth of gold every month.
Now, a natural beneficiary of a new leg up for gold and silver will be junior miners.
The junior mining market has been destroyed in the past year. However, insiders have been buying in bulk.
And this reminds me of what happened when the financial crisis hit in 2008: Junior mining stocks got destroyed. Sentiment was horrible. But insiders were net buyers... and they made money hand over fist.
That scenario is again playing out as you read this.
Next week I’ll share with you a list of gold and silver junior mining stocks I think could easily double in the next six to twelve months.
Brian is a founding member and President of Angel Publishing and investment director for the income and dividend newsletter The Wealth Advisory. He writes about general investment strategies for Wealth Daily and Energy & Capital. Known as the "original bull on America," Brian is also the author of the 2008 book, Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century. In addition to writing about the economy, investments and politics, Brian is also a frequent guest on CNBC, Bloomberg, Fox and countless radio shows. For more on Brian, take a look at his editor's page.