The silver market has been very interesting lately but what really rankles me is the various commentaries that have popped up from across the financial media world. It seems that as soon as silver gets near $50 all of a sudden the silver bears come out of the woodwork and even some usually bullish observers are leap-frogging over to the silver bear camp. What are silver investors and speculators to do?
First of all, as we have known for years, silver in the short term can be very volatile and abrupt pull-backs can happen. The leading culprits for recent pullbacks lately (which resulted on April 26th and May 2nd) were the moments that the futures exchange raised the margin requirements. The first time was on Monday April 25th and then again on Friday April 29th (a whopping 75% increase). For those that were long in the silver futures market those were exasperating moments. Should we be concerned or pessimistic about silver’s future?
I think that many investors and speculators became very concerned as all the dire warnings of a silver top started being publicly presented and it didn’t take much for a stampede for the exits to be triggered. What better trigger than the futures exchange pushing margin requirements much higher practically forcing a sell-off?
I don’t blame folks for being concerned and a little panicky when you see financial experts (both real and alleged) warning about an impending collapse for silver. Have the prospects for silver changed that drastically in recent weeks (days!)? Did China and India suddenly float away from planet Earth? Did all of us stop using cell phones, Iphones, Ipads, medical technology, computer screens etc etc?
I was recently quoted in an article that was ominously titled “The Silver Mania May Come to an Abrupt End”. The piece even quoted a financial authority that I certainly respect that called himself a long-time “raging bull” on silver until it recently flirted with the $50 level and then…BAM…he became bearish and then recommended in his newsletter to sell all silver holdings. Some raging bull!
I think a good headline should have been:
THE SILVER MANIA MAY COME TO AN ABRUPT …PAUSE.
Look, the fundamentals for silver are great and they get better everyday. Look at Supply and Demand:
Worldwide supply is tight. There is no huge silver mine out there that will come on line any time soon. Meanwhile, the threats to supply keep growing. Places like Ecuador and Bolivia keep rumbling above potential nationalization of silver mines. China’s ability to generate domestic supply has fallen to the point that China is no longer a silver exporter and has switched to being a major silver importer.
Demand is relentlessly rising. Investor demand for physical bullion continues at a record pace (just look at the sales data from the U.S. Mint). In recent years, new innovations and uses in technology, healthcare, electronics and alternative energy have ensured steady demand in slow times and tremendous demand when the economy rebounds. Worldwide industrial demand will simply not go away…certainly not in this century!
Will there be pull-backs and corrections? Absolutely…count on them! Will you see some of these experts (both real and alleged) crow about being right when silver plummets (which it invariably does)? Yes! Could silver plummet by 10, 20, 30 or possibly 40% in the short-term? YES! Count on it!!
Why?! Because it already has…many times! That is the nature of the silver market.
Here is a small sample of the “collapses” that have happened in silver since 2004:
April 2004: Silver falls from $8.25 to $5.50. A 33% correction.
May 2004: Silver falls from $6.10 to $5.40. A 12% correction in only 4 trading days.
Sept. 2004: Silver falls from $6.80 to $6.12. A 10% correction in only 8 days.
Dec. 2004: Silver falls from $8.00 to $6.60. A 17.5% correction is only 2 weeks.
Jun-Jul 2005: Silver falls from $7.55 to $6.80. A 10% for the summer.
Apr. 2006: Silver falls from $14.25 to $12.10. A 15% correction only 2 days.
May 2006: Silver falls from $15.00 to $12.00. A 20% correction in only 10 days.
June 2006: Silver falls from $12.50 to $9.70. A 22% correction in only 9 days.
July 2006: Silver falls from $11.75 to $10.50. A 11% correction in only 7 days.
Sept. 2006: Silver falls from $13.25 to $10.75. A 19% correction in only 10 days.
Dec. 2006: Silver falls from $14.10 to $12.50. A 11% correction in only 14 days.
Mar. 2007: Silver falls from $14.30 to $12.50. A 13% correction in only 4 days.
Aug. 2007: Silver falls from $13.10 to $11.60. A 11.5% correction in only 10 days.
Mar. 2008: Silver falls from $21.00 to $17.50. A 17% correction in only 3 days.
Apr. 2008: Silver falls from $18.50 to $16.50. A 11% correction in only 13 days.
And then silver had a biggie…
July-Oct 2008: Silver falls from $19.40 to $8.85. A 54% correction in under 3 months.
And don’t forget…
Feb-Mar 2009: Silver falls from $14.50 to $12.70. A 12% correction in 3 weeks.
June 2009: Silver falls from $16.00 to $13.70. A 14% correction in 20 days.
Jan. 2010: Silver falls from $18.75 $16.25. A 13% correction in 18 days.
May 2010: Silver falls from $19.70 to $17.50. A 11% correction in only 11 days.
Please keep in mind that in between those periods there were plenty of declines of 5-9%.
If you look back to the headlines during the more severe corrections in the 20-54% range, you will find pundits that said silver’s bull market was over. You will find pundits that prematurely announced that silver was at death’s door or that a bear market was just about to start. I even recall one expert forecasting that silver would fall below $2. During the same time-frame I was forecasting $50 silver in my public seminars and in various internet venues (spot silver hit $49.82 on April 25…close enough!)
But…look at the bigger picture:
Jan. 2004 – May 2, 2011: Silver rises from $5.95 to about $43.50. A gain of 631%.
In my mind, $100 silver is not an “if”…it is a “when”. Will it zig-zag on the way up? Count on it!