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Silver looks vulnerable to a short-term price fall

Posted on 04 October 2010 with 9 comments from readers

After a stellar run up over the past six weeks the silver price is looking vulnerable to a correction. Silver is now more than $22 an ounce, up very sharply since the summer.

The article about silver investment in The Daily Telegraph today is a typical indicator of a short-term top. So too was ArabianMoney’s appearance commenting on silver prices on City 7 TV in Dubai last week.

National newspapers and TV usually only spot a trend after it has happened, and not before. They after all report news and leave the forecasting business to investment websites and newsletters.

Volatility equals opportunity

But if silver now suffers from one of its periodic flashes of volatility this is the best time to buy. That will be when newspapers perhaps report that silver has proven a fickle friend again for investors.

In late 2008 the silver price more than halved in the global financial crisis but has more than doubled since then. When it dipped was the time to buy.

The past has a habit of repeating itself, particularly the recent past. However, the fundamentals in the market also support the notion of silver being overbought in the short term. Some analysts see silver back at $13.50 within three weeks.

The stock market rally is looking long-in-the-tooth and at the classic over-optimistic stage before a sudden reversal. Once that happens, as in late 2008, the impact on precious metal prices will be to drag them down with it. Gold and silver will be sold to cover losses on stocks.

Buy the dip

Buy on the dip then and you should get a decent recovery, and then the real upside is to come as central banks print money and precious metals surge much higher.

Consider this chart from clivemaund.com which shows how the technical chart points to overbought silver:

Posted on 04 October 2010 Categories: Gold & Silver

9 Comments posted by readers:

Comment by azazel - 04 October 2010

Silvers only just taken out its March 08 high and is still along way off its 1980 high. Buy physical on dips and hold is the best strategy, unless you are a pro trader buying ETF. Silver is likely to go to $30 on this moveup…IMO

Comment by Bill Simpson in Slidell, LA. - 04 October 2010

The 1980 high in silver was caused by the Hunt brothers of Texas trying to gain control of the silver market. People literally lined up to sell the family silver as the price exploded. Gold would have to go far higher than it is today, to match the inflation adjusted $800 an ounce of back then. I think the Hunts ended up losing a lot of money, but I’m not sure.
Today marks the end of the greatest theft in human history, the TARP. The bailout of the Wall Street banksters by the American taxpayers. That saved the wealthy from losing most of their money. The banksters made ultra risky loans, many of which involved fraud, in order to increase their yearly multi-million dollar bonuses. In doing so, they nearly destroyed the entire financial system. Doubt it? Watch the David Faber CNBC special, ‘House of Cards.’ He is doing another one on Goldman Sachs on Wednesday, Oct. 6. I doubt that he will mention the deal cut between JPM & Goldman, so that Goldman wouldn’t interfere in the deal in which JPM ripped off the people of Birmingham, Alabama on their new sewer treatment plant, which ended up costing the residents hundreds of millions of dollars more. The wonderful financing creation of JPM nearly bankrupted the entire county. Just a little extra bonus for the boys on Wall Street bailed out by TARP taxpayers. That taxpayer fleecing by the Wall Street banksters is NOT unique. That is why Farrell thinks the system will collapse in his recent ‘Second American Revolution’ MarketWatch article.
How about the report in the Telegraph that the UK banksters might need yet ANOTHER taxpayer bailout next year! Are these banksters on the dole working for minimun wage, like the folks on welfare here in the USA? Naw, they control the government. They still have their 5 houses. The common folk can just retire later to pay the extra government debt created to bail them out. Remember when McCain didn’t know how many houses he owned? (His latest wife owns part of a legal drug [alcohol] distributorship.) That is when I knew Obama was the next president.
The Chinese have decided that they need to bail out Greece by buying their debt, in order to save the euro. How far will they go with their EU welfare program? Are Ireland, Spain, Italy and Portugal next? Those Germans lucked out. Now they won’t have to support all of Europe. The US polices the world, now China will have to subsidize it, so as to protect the value of their foreign paper money holdings. They might decide to put their profits into precious metals, instead of into more paper. How far with the euro bail out will they go? They have got to know that they run the risk of a haircut, if the bonds go south. They can’t buy Brazil, India and Russia. Those countries won’t let them control too much of their economy. Watch out Aussies, Kiwis and Canada. China is about to buy everything in sight. Your companies, farms, everything they can. That, and above all, oil. Their African stuff might get stolen.
This crisis is far from over. The Telegraph bank story pushed the dollar up, so the Dow went down. Ben will fix that with another half trillion of instant debt.

Comment by Tears of the Moon - 04 October 2010

Peter I would have to agree Silver has been on a strong run the last few weeks which is bound to encourage profit taking by traders.

On the physical side demand is still strong in our shop for silver, but no more or less than it was when silver was priced at AUD690 than it is now at AUD773.

Now that the Australian share market and pension funds balances have recovered many people are becoming interested in managing their own pension funds (or Self Managed Superannuation Funds in the local lingo) and many of those people are looking to gold and silver to protect their retirement funds from future stock market and currency fluctuations. Actually I have had several clients who were interested only in silver and not gold and others who wanted a mix of gold and silver for their retirement funds. Which is different to the standard retail customer who tends to buy considerably more gold by value than silver. It seems those who take the time to protect their retirement savings in gold and silver also do enough research to discover the relative merits of silver over gold.

Oh we now have an easier to remember URL for the blog now: http://www.gold88blog.com/

Comment by obewon - 04 October 2010

Great commentary, Peter!

In the near term, investors who want (but don’t have…!) exposure to silver will likely get another opportunity to buy.

About 2 or 3 weeks ago, I sold off about 25% of my silver stocks in anticipation for a fall; needless to say, I made a significant amount in this sell transaction. However, I plan to buy them back now that the price of silver is going into correction.

For those who don’t own physical silver, perhaps your last opportunity to buy at a bargain price is coming soon. But don’t expect this window to remain open for long.

An Interesting Read on What the Wealthy are Buying:
Those who are already invested in physical gold and silver know this already . . . but the uber-wealthy are buying gold and silver in large quantities and are removing the physical metal from banks, whom they strongly distrust (and for very good reasons!). For an interesting read on this topic, go here:
http://www.zerohedge.com/article/gold-best-hedge-against-tail-risk-when-uber-wealthy-bank-clients-buy-tons-physical-gold

Comment by obewon - 05 October 2010

@ Tears:
Very interesting story about Aussies folks wanting to self-manage their own retirement funds; the same is happening here in the US, as more and more people are highly distrustful of banks.

I’ll check out your web site.

Comment by obewon - 05 October 2010

@Bill:
Very interesting stories about JPM and GS; I’ve read them before. Since most shenanigans and fraud can, and is being exposed by the Internet, I suspect that the “truth-telling” capabilities of the Internet are the worst nightmares for governments and for highly corrupt firms such as JPM and GS.

In fact, I firmly believe that JPM and GS are, by far, the most despicable, most fraudulent, most corrupt organizations on the planet … by far.

And you are certainly correct about China buying everything in sight; Tears ought to be very concerned about his country!

Comment by Tears of the Moon - 05 October 2010

Bill you are correct, Australia has to be very careful where China is concerned. Australia’s recent good fortune during the GFC (no recession, 5% unemployment rate) was on the back of strong mineral exports to Asia, in particular China. China tried to flex it’s muscle last year with a an attempted take over of the Anglo-Australian miner Rio Tinto (2nd largest miner in Australia) which was blocked by the Australian Govt. In an apparent retaliation China arrested and convicted the head of Rio Tinto in China (an Australian citizen) and sentenced him and other local Rio employees to 10yrs in a gulag. Only last week the Australian newspaper had an excellent article on this very topic:
http://www.theaustralian.com.au/news/opinion/dont-kowtow-to-the-chinese/story-e6frg6zo-1225931985418

Comment by Tears of the Moon - 05 October 2010

Obewon, the Self Managed Super Fund concept is just starting to become mainstream now. It is similar to the US’s IRAs but more flexible in the assets that can be held although assets are not allowed to be for personal use, ie must be true investments and all assets must be kept in the fund until age 60 before being cashed out or used to supplement personal income.

Re the US we have recently picked up a few US customers wanting to buy and store gold and silver outside of the USA – most have expressed their desire to prevent US Govt. seizure of their holdings, but more importantly avoiding the IRS snooping into what they rightly considered their private affairs.

Comment by obewon - 05 October 2010

@ Tears:
Tnks for the info. Yeah, many folks here in the US also want to manage their own IRA accounts; some of them do it now, while many others “want to” but are reluctant, because of the learning curve.

RE: US investments outside of the USA
Many “informed” investors here in the USA have similar concerns to those you expressed. There is virtually no way to “hide” from the US government’s prying eyes. The recent “ObamaCare” bill that was passed into law contains a provision that forces gold/silver coin dealers to report all sales over $600 to the IRS. So that’s practically every purchase . . . and what does that have to do with “health care”???

The reason the government has done this is to ensure that they can collect taxes on the sale to private citizens, and then collect taxes again on eventual sale of gold/silver by private citizens. What a wonderful country this has become . . . what used to be the “land of the free” has become “the land of the tax slave.”

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