Everyone following silver closely cannot help but get dizzy with this precious metal that has been the favored investment among the investment crowd that has been subscribing to all sorts of extreme events: A dollar collapse, a forever accommodating FED, and an ever-growing demand for precious metals from China. At times, however, these extreme scenarios have been dashed by reality and the metal price has corrected sharply, like ten months ago. In just a few days, the shinning metal lost close to 35 percent of its value, dropping from the high $40s to the low $30s -- catching by surprise all those who believe that the heavy metal can defy gravity in the land of near free money.
In the months that followed, the metal recovered nicely, however. The iShares Silver Trust (SLV) rallied from the low $30s to low $40s -- drawing the enthusiasm of traders who believe that the correction in the price of the metal was just a pause in a secular rally. Then, last September, the metal underwent another correction from low $40s to upper $20s, and eventually stabilizing in low $30s. What is next? Is silver ripe for a third correction?
Hard to say. What we can say, however, is that a number of factors that propelled the silver rally are no longer in play, or they don't carry as much weight as they used to. The dollar is rebounding, rather than collapsing; the EU is still one piece; the American economy is rebounding; the Chinese economy is slowing down.
In the meantime, money is moving into stocks, narrowing the gap between stocks and precious metals. This means that it may be time for investors to rebalance their portfolio by moving money out of silver and into stocks.
Additional disclosure: I am long ZSL.