Ignore My Silver Prediction At Your Peril
On April 14, I suggested that the price of silver was long overdue for a correction.
The vitriol instantly hit our inbox…
“Rubbish”… “Chucklehead”… “Nice try, buddy”… “We’re in a whole new world.” (The latter of which sounds like a euphemism for “it’s going to be different this time,” which is never the case.)
I’ve learned to treat such negative feedback as a confirmatory signal. Every other time I’ve issued a controversial, contrarian call – whether it’s on the U.S. dollar, oil prices, real estate, etc. – my inbox was flooded with incensed and defiant readers.
Until they found out I was right.
So go ahead and ignore my prediction about silver prices being overdue for a correction. Blind faith in an asset is precisely the factor that makes massive corrections possible.
Then, as the price starts to stumble, instead of selling, denial kicks in. Pain and heavy losses quickly follow. And I’m convinced that many investors are about to learn this truth the hard way.
Why? Because silver prices just started to stumble. And all signs point to the decline continuing…
The Silver Fever “Breaks”
Over the past year, interest in silver has hit fever-pitch levels. How else do you categorize a 150% increase since last August and a 60% jump in 2011 alone?
The most recent trading volume data smacks of rampant speculation, too.
The Wall Street Journal reports that 319,205 silver futures contracts traded hands on April 25. That’s 50% higher than the previous daily record last fall. And for the overall month of April, average daily trading volume roughly tripled.
Hmm… such volume spikes couldn’t possibly be a sign of speculation, could they?
Well, as you know, no asset shoots higher forever without pulling back along the way. And silver is no different.
On Monday, silver prices hit the skids, dropping 12%. And the metal has continued to fall all week.
The main culprit? Exchange operator CME Group (Nasdaq: CME). It’s jacked up the margin requirements for trading silver futures three times over the past week. And there’s only one way to interpret such moves…
It’s Time to Pay More to Play
When an exchange operator hikes margin requirements by 38% in a week, it’s not because it wants to encourage more trading. On the contrary… it wants to discourage speculation.
Or as Bernard Sin, the head of currency and metal trading at MKS Finance SA, told Bloomberg News, “The exchange is trying to calm the market down. It’s been overheating.”
The quickest way to do so, of course, is to make investors put more skin in the game. And that’s precisely what’s happening.
A year ago, the minimum amount of cash required to trade a silver futures contract stood at $4,250. After the latest margin hike, it stands at $16,200.
Yep… I’d say a roughly four-fold increase in the ante is a deterrent.
And I’m certain that the next round of trading data is going to show that the increases have forced smaller investors to liquidate their positions. It might have convinced savvy investors that it’s time to lighten up, too.
After all, when the exchange operator starts getting worried about speculation, shouldn’t we?
“Denial Ain’t Just a River in Egypt”
Of course, diehard silver bulls are bound to dismiss the new margin requirements as merely a speed bump. They’ll point out that past price hikes led to short-term sell offs, so it’s bound to happen again.
Then they’ll cue up their lines about how it’s an institutional conspiracy to manipulate prices, plus the soaring industrial demand, in order to try to convince us that silver can only head higher from here.
Spare me!
Sure, formal lawsuits against JP Morgan Chase (NYSE: JPM) and HSBC Holdings (NYSE: HBC) lend legitimacy to conspiracy theories. But that’s what makes people buy into conspiracy theories – just enough evidence to suggest it’s possible, but never enough to prove it happened.
As for the industrial demand argument, I pointed out last time that even the most robust increase can’t fill the void if the speculative demand suddenly disappears. Remember, investment demand jumped 41% last year, nearly doubling the growth in industrial demand.
So with supplies increasing, basic economics should ultimately prevail. In other words, look out below!
And let’s be fair… a massive and sudden price drop is exactly what we should expect when it comes to trading silver.
Fact: Silver is Notoriously Volatile
Analysis firm, CPM Group New York, said it best this week: “No asset in history has risen so sharply so rapidly and retained most of its price appreciation. Silver has no immunity to the laws of the markets.”
History bears it out, too.
After rising to a record $50.35 in January 1980, silver prices plummeted 78% in four months. And during the financial crisis, silver lost half of its value in the blink of an eye.
Heck, even Wall Street’s blue bloods aren’t ignorant to the potential for a silver haircut…
- “Silver is due for a correction… as we’re approaching the seasonal period where silver reaches an interim high,” says CIBC in its latest report.
- Swedish bank SEB said it expects the violent corrections lower to continue.
- And from the “No Surprise Here” files, Switzerland’s UBS is – you guessed it – “neutral” on the outlook for silver in the medium term.
Get Ready for $30 Silver… and Invest in These Stocks
Bottom line: Silver is prone to nasty corrections. And while it’s premature to say, “I told you so,” the price action certainly suggests we’re headed for another one.
In fact, the price could drop as low as $30 per ounce.
If I get bombarded with nastygrams again, I’ll know I’m on the right track – and that the price might fall even more.
If you insist on ignoring my prediction, at least be smart about investing in silver right now. How?
By opting for silver miners, instead of silver bullion.
While bullion has blasted higher – up 55% this year, based on the iShares Silver Trust ETF (NYSE: SLV) – silver miners have lagged significantly. Case in point: the Global X Silver Miners ETF (NYSE: SIL) is only up 5% over the same period.
If silver prices are indeed headed higher over the long term, such a performance disconnect should neither exist, nor last.
Then again, maybe investors in silver miners are sending us a signal – that prices are headed even lower.
Time will tell, of course. But whatever you do, ignore the recent developments at your peril and proceed with caution.
Ahead of the tape,
Louis Basenese
Related Topics: Commodities, Think Contrarian
It’s called “manipulation”. The liberals are trying to cover up the Keynesian catastrophe and to punish those who were smart enough to call them out in trades.
If Obama gets reelected expect outright confiscation of metals.
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I will ignore all your bias “recommendations” – this is just another panic button push to “control” the market. JP Morgan is under investigation and have sold billions of “silver assets” in form of certificates. There is no physical silver to back it up. Just like Fort Knox is probably empty!
Why is the dollar CRASHING? Soon it will not even be worth the paper it is printed on. If you compare it to any other currency of the world on a 10 year trend, it is losing value by the day. They are intentionally crashing it which is part of the plan to “get out of” or eliminate the growing 14 trillion dollar debt. It is increasing with $10,000/second and what is the government’s solution? Print more money!
This silver drop is just an attempt to rock the market and again FALSLY undervalue it’s real value. It will sky rocket when they rob the entire nation and implement the new Amero.
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This is a false warning. Silver is just dipping temporarily.
The US dollar is crashing by the day against any other currency. Buy more silver when it is low!
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Until America “seriously” does something with it’s debt problem precious metals are not going down other than short term burst.
The media is already brainwashing America that we do not actually have a debt problem. Good luck with that one
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Well, just like others who see gold and silver as “securities” to be “traded”, it looks like fundamentals just don’t mean anything to people on Wall Street, even those who claim “not to lie”. I’m not saying the author is lying, but is still drinking the Kool Aid. Wall Street, the Fed, the US Gov and global banksters have lied for 200 years. They keep trying to use fiat currency to control everything and everyone. This is the latest round of collapse in the Ponzi scheme. It looks like every response to the article is not fooled, either. The People are waking up. At least some of us will be standing when the next round begins, with a gold standard. Then, the author will be shocked to find that all the BIG SHOTS have been hording gold and silver all along. Gee, I wonder why??
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the silver price is almost always cheap regarding to another metal mineral prices that suppot the currency of us dollar in silver in the trade and another currency for the international commerce payments-so the us international debt is over the the 45 billion of dollars so the money value.
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I don’t understand why you would be so biased about silver. Historically, price corrections are all explainable. This current correction is no doubt about the increases in margin requirements. However, the other people that replied and mention the dollar “problem” I believe will prove to be more right.
Until the U.S. comes to grips with reality, the price of Silver (in dollars) will have to stay in its general overall up trend.
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For every penny the dollar losses value, silver gains a penny and dont forget that.
When there are devaluations in world currentcies silver gains value.
Silver is volatile when the world is economically sound and the dollar is appreciating. silver prices are still being manipulated.
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Why does China then opted to buy SOOOO much silver in the last year or so? Are they making a huge mistake? I hardy think so — you are just into this for your own greedy motives like most are – I bet you are buying up all the silver you can get your dirrty little hands on!
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Derek Mearns Reply:
November 15th, 2011 at 10:34 am
We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation.
http://www.wallstreetdaily.com/disclaimer/
Derek Mearns, Editor
Wall Street Daily
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Leon Reply:
March 11th, 2012 at 7:42 am
Now it looks like he is getting paid by JP Morgan or the FED.
That or he lost his mind.
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After you think the whole situation through, there is only one logic you have to follow more money printing => price of commodities go up. On top of that the value will go up fi. as silver supply runs out. Gold remains contango.
Strange that you posts contradicts the advice in the WSD Insider don’t you read your own company newsletter ?
I will complain with the editor about this post as it is manipulation by providing wrong information to readers.
Did JP morgan pay you to write this piece ? I feel offended and angry.
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If you believe the bull she is writing give my your address and I’ll buy all the silver you have on hand, and I’ll give you $30 an ounce. But when you are broke because you kept investing in a market that is about to collapse and commodoties will be higher than anyone can afford, and the dollar is worth toilet paper, maybe you can use it to cry on.
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Silver will take a small plunge probably down. To bout 25-28 but when it comes back I tr. uly believe. It will jump back fiercely too 80 plus that’s just. my opinion from how much. More we. Are having to dig compared to the 1960;s to the amount we are. Getting now out of are mines today. Good luck
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