Today was the day where I exited most of my silver position. I don't see this magical bubble raging much higher and setting new highs. That said, I still believe that if somehow it magically goes above $50, it would run for at least a while. I haven't entered short positions, yet. That said, when I am sure that it is breaking down, you better believe I'll be riding the bubble down, just like I rode it up. I have previously covered my hesitant desire to purchase silver here and here, where the idea was to own it until I don't think that it is going to set new highs.
Why did I sell? China is the marginal purchaser for everything commodity related. I also am in agreement with Jim Chanos regarding there being a massive Chinese Real Estate bubble. Today, China disappointed. They are showing signs of slowing. All said and done, bubbles don't pop until things start slowing down. Overnight, silver prices got destroyed on this news. That's pretty much exactly what I was looking for -- any meaningful weakness that invalidated my investment hypothesis that it would just keep setting new highs.
For those who want to buy silver, I would caution buying into SLV at this point in time. I think the smartest people are short, or have sold their physical silver to ETFs like SLV. Even more in the dangerzone would be owning AGQ, which is double leveraged to the upside on silver.
How do you profit from lower silver prices? ZSL is the -2x leveraged ETF that profits from a fall in silver prices. I don't own it yet, but with a few more days of silver breaking down, I'll likely go long ZSL.
Lastly, if I'm right, and you see other industrial commodities start heading lower, that would mean that China isn't buying them like they used to which would mean that the internal problems are finally having external consequences. If this is the case, the old addage "Sell in May -- Go Away" would be the most prudent thing to do.