Monday 9 May 2011
The "shock and awe" drop in silver from the last several trading
days is likely to be viewed as a normal, and much needed correction
and good for the market. There are several factors at play here.
From a technical perspective, the steep assent was unsustainable,
plain and simple.
From a fundamental perspective, higher prices brought out supply from refiners wanting to take advantage and sell scrap metal,
estimated to be running 4 - 5 million ounces per month, and maybe
for the next few months in duration. It will take several months for the
market to absorb this supply, and we expect to see a trading range
develop, going forward and into the Fall. This augers quite well for
the market, for once silver goes back to the $50 level, the current
supply will have been absorbed, and it will not be a factor, next time
around, and that will set the stage for the next rally.
Another fundamental factor that has not changed is the tsunami
numbers of fiat Federal Reserve Notes that are flooding the world
markets. Americans are already seeing the effects through much
higher prices in the cost of living, and the pervasive erosion of the
fiat currency. In the 1980s, world assets were in the $70 - $75 trillion
range. Today, it is now around $180 trillion, mostly through
measuring via currency movement and not by growth from new
production of goods. Some use this reality to project silver to go to
$145, or so, adjusted for inflation. This is on the low end. There are
silver "pundits" look for $450 silver.
From the weekly chart below, the last swing high occurred in January,
at $31.27. The current low, after the equally steep drop is $33.53.
That leaves a "space" of $2.26. Should that spacing hold, it will be
very bullish. Why? It indicates a willingness for buyers to step into
the market and buy NOW, without waiting for lower prices. We are
seeing another transfer of silver, going from weak-handed sellers to
strong hands of substantial buyers. This is how all markets function
for the past hundred years.
We are also seeing more of a disassociation between physical
silver and paper traded silver. Much of the recent decline is an
intentional washing out of those who buy silver on margin. That,
along with the purposeful raising of margins to put the squeeze on
margin traders has been effective. It has done nothing to shake the
confidence of owners of physical silver. In fact, this may well be one
of the firesale opportunities to own physical silver in a lifetime.
It is highly recommended that everyone take advantage and buy
silver bars, silver Eagles, getting rid of fiat and investing in both gold
and silver as a reliable store of value into the future, and the future
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