Sunday, September 25, 2011

Recent price action in Gold/Silver/Miners

You would had to have your head in the sand to miss the recent collapse in prices of Gold and Silver along with the miners and most other stocks and commodities over the last couple of days.

My prediction that we should expect the unexpected (a surprise from Bernanke) was clearly wrong and the markets did not like the predictable announcement of 'Operation Twist'.

Zero Hedge has reported the CME has again increased margins for the metals, which likely contributed to their price falls. Given the change doesn't come in until Monday there is the potential for continuing pressure on the price of the metals as traders meet any resulting margin calls.

The price of Gold has collapsed around $300 from the recent highs in USD.

It's a little early to tell where the price ends up over the short term. The 200 Moving Day Average (pink line on above chart) has provided significant support for the price over the last several years apart from the anomaly in 2008. If we are heading into a liquidity crunch similar to that seen in 2008 then we could easily see the price dip below the 200MDA again in the short term.

Silver is experiencing a brutal sell off, which is not totally unexpected. Six weeks ago I posted the following:
Silver’s industrial demand & properties are pushing the price down.
Silver’s monetary demand & properties are pulling the price up.

So it sits in limbo, trapped within a small price range.

My concern is that if the nature of metals as a safe haven is questioned (even short term) causing Gold to correct significantly, then we are likely to see Silver get SMASHED. A falling Gold price could also come around from the collapse under the weight of its own parabolic rise or maybe the just announced (or future) CME margin hikes (Gold’s just increased by 22%) will push the price down.

As I have pointed out in the past… following similar price spikes (in Silver) to the one we saw earlier this year, in 2004, 2006 and 2008, the price of the metal remained subdued and consolidated at lower levels for a lot longer than 4 months before moving onto new highs. There’s no reason to expect any different this time around unless we are heading into the final parabolic peak of this bull market.
I do think Silver under $30 is likely at some point in the near future (as previously discussed in this post) when this crisis escalates and before the final parabolic blowoff top that will come later as the public rush in. Bullion Baron
With increased pressure of economies slowing and now with Gold falling as well, Silver has truly been hit with the double whammy.

A couple of months ago I suggested that Silver may head down to test the breakout past the 2008 high (e.g. around the US$21-22 level) and I still think this is possible, although very much depends on events yet to unfold. I am currently comfortable with my level of Silver exposure. If the price dipped below around $25 I would be a buyer again.

The miners have taken a beating. To be honest I was not expecting both the stock market and the metals to crater together, so there was no way the miners were going to hold up against these pressures when combined (they may have had a chance if the rest of the stock market held up and metals came off in price a little more orderly). If we're staring down the barrel of a 2008 repeat (which seems to be the common meme at present) then further miner weakness should be expected, however I'm sure Bernanke and others wont want the crisis to get that bad again and assume they would step in with easing prior to this. Even this weekend I am reading reports of a potential multi-trillion dollar bailout being put together:
The complex deal would see the EFSF provide a loss-bearing “equity” tranche of any bail-out fund and the ECB the rest in protected “debt”. If the EFSF bore the first 20pc of any loss, the fund’s warchest would effectively be bolstered to Eu2 trillion. If the EFSF bore the first 40pc of any loss, the fund would be able to deploy Eu1 trillion.

Using leverage in this way would allow governments substantially to increase the resources available to the EFSF without having to go back to national parliaments for approval, which in a number of eurozone countries would prove highly problematic. Telegraph
Whether it comes to fruition is another question. The Eurozone bailout rumours have been circulating at full force the past couple of months, however if such a plan was implemented there is certainly the potential for it to reverse falling markets and commodities.

It's a dangerous market at the moment. Play it safe!


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  1. Ive been looking for a chance to go from 10% phys PMs to more like 40%, the rest is cash and 10% mining stocks (KAS & EVG)

    Never would I have thought a chance like this would come along to get bargain PMs.

    I follow a few websites, Gary on SMT is saying this is just the start of the cycle and theres a long way down to go. Turd from tfmetalsreport and his many many commenters are all saying itll bounce back in just a couple of days. Bob Chapman said the same thing too.

    Im keen for a bargain but will if fall further, who can say huh.

  2. I've been wanting this collapse to load up too! It's just a shame that the AUD has dived to make it less of a big sell off in our dollars.

    Silver at US$30 is a bargain even if it goes down to 25. In one years time, it should on at least one occasion have made it up to 40. In these turbulant times, I'm happy to potentially make 20+% profit whilst also having security in case the whole system fails.

    Mining stocks going down doesn't worry me as they are a more medium term investment.

    Gold will definately go higher eventually once the real devaluation race to the bottom between the USD and EUR hots up.

    I will nibble at one of the above tomorrow but am still working out which. Even if this isn't the bottom, its still a nice entry point if holding for 1 year plus.

  3. It is hard to say when we will see the bottom of the correction. If we see a similar setup to 2008, the lows could come in the next couple of months.

    I agree, I think $30 Silver is a great price if you are looking to hold with a 12+ month time frame.