Tuesday, May 10, 2011

Silver starts it's climb back up.

On Friday, Silver fell as low as $33.10.

Five CME margin hikes (and other margin hikes from Brokerage houses) in 8 days did their job.  Traders speculating with borrowed money were forced out, the liquidation causing just over a 30% plunge in the paper price of Silver which allowed those holding huge short positions in Silver to cover a large number of their shorts.

But as we have said, the fundamentals that drove Silver to these heights still remain.  As the Bank of Montreal declared in an investment report in April, 2011, there is a new paradigm for Silver.

And the vast number of investors recognize this too.

As a result, the artificially manipulated collapse in paper Silver price - while temporarily successful in driving that price downward - did little to deter demand.

As we noted on the weekend, ScotiaBank quickly sold out of their Silver stock as buyers lept at the chance to buy Silver 'on sale'.

Or at least as buyers tried to buy Silver at that price.

The problem was finding it, and if you could find it... buy it at $33/ounce. Many dealers simply wouldn't sell it at that price.

Even large mining companies like Canada's First Majestic Silver, who sell bullion directly to customers, were having nothing to do with the artificial price drop.  Majestic simply refused to sell a 1 ounce Round for below $40 ($7 over the 'supposed' price of an ounce of Silver).

Not surprisingly Silver has rebounded almost 20% from Friday's low.  The spot price now sits just below $39. 

With the spot price up almost $6 from Friday morning, how much has First Majestic increased the price of their 1 ounce Round by?

50 cents.  The price is now $40.50.

They knew exactly what we had been saying... the manipulated price last week was artificial and would be coming back up.  Therefore they refused to sell their physical at such ridiculous prices.

A colleague emailed to report that he went to the Vancouver Bullion Exchange at Broadway/Granville on Monday in an attempt to buy some physical silver at fire sale prices.

They didn't have any Silver to sell. No rounds, no 100 oz bars, nothing between.
  • "I was in a line up of 20 people, about the average of the office during my visit (twenty-five minutes). Interestingly, with no Silver to buy, most of the patrons were trading in US dollars to convert to Canadian dollars.  The amounts ranged from $5,000 down to $300."
Make no mistake.  The Silver commodity market will end in a bubble.  There will come a time when this blog writes about the irrationality of the market and tells you that you shouldn't be investing in it.

Most bull markets and most sectors, whether it is stocks, real estate, or whatever it happens to be, lands in a bubble.

We are far-far-far from a bubble so far.


Email: village_whisperer@live.ca
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  1. Took your advice. Bought it on "sale." $40.50 an ounce. I too believe it's got nowhere to go but up. And heck, even if it matches inflation it's doing better than the cash sitting in my savings account.

  2. Sounds like I didnt miss out on Friday after all. Such a strange time...

  3. Of course Silver will go up as the value of "money" continues to decrease, for one simple reason. Money printing. People fail to comprehend the gravity of the western financial situation. If low interest rates are not maintained through the ongoing purchase of US debt by the Fed, not only will the economy crash through it's inability to maintain the massive debt load. The quadrillion dollar derivative beast will unravel and crush everything in it's path. This fact is ignored by nearly everyone, since there is no fix. We are trapped in a room with the proverbial 800 pound gorilla, and the banana supply is diminishing rapidly.

  4. ^ Precisely why I got onto the silver bullet train. You know, one the big things that I have not seen much speculation on, is just how the derivatives market will unravel. At what point, does it simply just evaporate? I suspect that the mathematical modelling is too complex to simulate.... or then, perhaps very few know precisely when it will. In that case, could they us that knowledge to buy the world?

  5. Mish had a very interesting post on what the margin changes and subsequent price movement say about the leverage involved in long/short positions of oil/silver. Seems the frequent meme of natural organic investors betting on a certain rise in silver and the big bad speculators artificially beating it down doesn't hold up mathematically.
    I'd love a reasoned response to that. Something more than an emotional "silver to the mooooon!"
    How and why is Mish wrong?

  6. and i'm freeee....free fallin'


  7. Hurrrayyyyy!!! Its a gift from the gods... a buying opportunity where I can get almost twice as much as I could a month ago.... Wheeeee.... WHEEEEEEEEEEEE!!!!! (( Except, VBCE won't sell it at this price apparently ))

  8. You can buy twice as much of something you can't eat, can't shelter in, can't get any possible utility out of, doesn't pay dividends. Is nothing more or less than a type of money. Is worth exactly what someone else will pay for it.
    And what about the 1/2 quantity you did buy a month ago? (Don't know why you would have paid $68/oz, but apparently you did.) How much is it worth today?
    Now if that dreaded hyper-inflation does show up in Canada you may do well, but other than price increases in food and energy which is NOT inflation, I don't see much inflation out there.
    If there was a way to pre-buy 10 years worth of food and energy I would, but it's kind of tough to store it and keep the veggies fresh.

    If the parabolic speculative spike in silver retraces all the way back to the low-mid twenties, I myself may very well get in, as it will probably have another spike in the near future and could be a very profitable short term play, but as far as buying in last week at $40 plus high up on a parabolic spike? I'm feeling kind of glad I didn't.

  9. There's little support for Silver until $22.
    Margins for Silver are still very low, about $6 will buy you $100 worth of Silver futures. The margin for error is very very slim, for those that bought futures at $45 oz the 25% price drop since will have completely wiped them out, big time.

    Playing the Silver producers with real money is much safer.

    For the ones that agreed to pay 20% premimum for physical Silver last weekend, I am at a loss for words.

    Commodity speculating is a very, very dangerous game indeed and buying physical metals is way to punitive, it usually comes with a 5% purchase surcharge and a like wise sell surcharge, it is not a game for amateurs to get involved in.