Monday, May 2, 2011

Silver: Buy the dip or start of a larger correction?

Silver took a hammering this morning on open. A fall of over 10% in a matter of minutes.

Silver recoups some losses after plunging

Gold & oil where also hit, but to nowhere near the same degree.

The commercial shorts took an opportunity to start covering last week during a similar sized sell off. One has to wonder whether this weeks COT report will show the same again (further short covering).

Several suggestions have been made about what might have caused the larger drop in Silver and these include reference to recent changes in margin requirements (after CME raised them a second time last week) as well as the news that Bolivia would not be nationalising it's Silver mines as was reported a couple of weeks ago.

Silver has recouped some of it's losses following the earlier drop and is now trading back above US$45.

It wouldn't be surprising to see Silver continue to make ground over the rest of the week with another attempt at $50 in the short term.

A lot of top callers have come out of the woodwork the last week with Silver investor David Morgan announcing that he had sold 25% of his holdings:
Well-known silver investor David Morgan said he sold his speculative silver position following Monday’s rally to over $49 an ounce on the futures market and is “happy to be in cash.”

“I’m out of my speculative silver position,” Morgan said, which includes futures, options and equities positions.

He said he is sitting on 25% cash, but keeping his core 75% position in silver. Kitco News
Mike Shedlock claims his move from Silver into Gold wasn't a 'top call', but actions speak louder than words and his comment that he will be looking to get back into Silver through another swap suggests to me that he does believe a top is in (or very close):
I have held physical silver and gold investments continuously for 5 years, and on and off before that. Today I cashed out of silver, trading it for an equal dollar value of gold.

For the sake of full disclosure, my physical precious metals holdings are now entirely at GoldMoney and I have an affiliate relationship with them.

As a result of that relationship, I will likely be back in silver soon, but in small amounts, and hopefully at decreasing prices. If silver crashes, I will consider switching a considerable percentage of my gold for an equal dollar value of silver. Mish's GETA
John Christian from the stellaconcepts YouTube channel (and the man behind a new metals trading site SPOTMEX) advised watchers that he had liquidated the 'investment' portion of his Silver, leaving just a core position.

John made some good points in this video and subsequent ones about the level of attention Silver is currently getting, but I disagree with the importance he has given to the short term blow off top seen on the Easter long weekend. Not all the regular metal markets were open when this occurred and it was on light volume.

I think we will see a much more spectacular blowoff top at some point over the next month or two, but ultimately this is just speculation on my part as were the top calls above. 

I added to my Silver position this morning during the dip at $40.18 via ETPMAG, an ASX listed ETF which tracks the price of Silver priced in AUD.


Disclosure: Positions held in Silver. Not investment advice. Do your own research.


  1. BB, it would be really good if you could regularly monitor and update both ETF and physical silver and gold trading volumes, as a time-series chart(s), perhaps on a (at most) monthly basis? (Hopefully not too much to ask).

    Alternatively/additionally, value of trades, as a time-series?

    This is great info, and would help you and us all track these precious metal bubbles that aref forming (2nd phase for gold, 3rd for silver, IMHO).

    All in keeping with your article here:

    Please let me know what you think, and if you could do this.


  2. Thanks Stewart, a good idea. I thought this data might be a little hard to come by, but I noticed tonight (at least for SLV) it's available on the website for the trust. Watch this space.
    Cheers, BB.