Saturday, March 26, 2011

Has Silver Topped?

Bob Moriarty recently wrote an opinion piece on Friday, March 25, asking the question “Is Silver Topping?” He writes that silver is at a “temporary top.” He goes on saying, “silver has doubled since late August. It's gone up about 45% since a small correction at the end of January and all sorts of pundits are claiming that silver is moving from weak hands into strong hands. Silver was up today for the 7th day in a row before collapsing.” (1)

Bob is correct in stating that the price of silver has doubled since late August. For sure this is a monumental rise for anything with a price tag. Also true is silver has made large gains since a small correction at the end of January. Still, when viewed in relation to global food prices—which, in February, were up 61% since their most recent low in December 2008 according to the IMF—as well as an increase in political and economic volatility arisen from global awakening, the silver price does not seem too unreasonable.

In December of 2008, silver had a low of $9.50. From that point, today's silver price has risen about 295%. Through August of 2010 it had risen, since that December 2008 low, about 100%. Assuming the IMF under-reported true spikes in food prices, and that the market crash in the Fall of 2008 suppressed silver prices, the recent gains in silver are certainly intimidating, but can be explained by a number of factors: such as, commodity inflation, investor demand, and the futility of silver manipulation,which we will touch upon shortly.

Moreover, the silver price has barely “collapsed,” as Moriarty claims. $37.30, down from $38.13, is not a collapse with silver reaching the underbelly of $40. The higher the price, the greater the fluctuations. There have been periods recently where silver has moved dramatically downwards and seemed very soft, as happened during the dip in January. Silver, obviously, rebounded to make the gains which brought it to about $38.13 an ounce on 25 March. This is not the month of January, when silver fell from about $30 to about $26.50. To many, these current prices might seem inflated, but old economic paradigms are irrelevant when analyzing new market movements.

For example, in his article, Bob states that “commodities go up and down in a far more random manner than anyone wants to admit.” In turn, I would flip this argument on its head, and submit that, rather, commodities go up and down in a far more controlled manner than anyone wants to admit. Raw market manipulation and speculation in futures markets, just as it does with oil prices, practically dictates gold, and especially, silver prices.

Whereas, heading into the 2011 summer, oil prices are heading upwards based on speculation regarding middle east turmoil and rising demand in developing markets, gold and silver prices have been kept artificially low, by transnational private-public partnerships, so as not to compromise confidence in Federal Reserve Notes. The FRN is a key instrument for“Full Spectrum Dominance” through the demise-of-the-state globalism practiced by keystone transnationals and NATO.

However, with markets quickening their way towards another crash, which will then naturally drive down the prices of commodities, perhaps keystone financial players like JPMorgan and HSBC have thrown in the towel when it comes to manipulating these markets, anticipating a market crash that will do this work for them.

This could partially explain the recent monumental gains in silver. Think of holding a beach-ball under water: the deeper one pushes it under water, the more energy one must exert, and the more momentum the ball will hold once it is let go to rush towards waters' surface. This seems to be what has happened to silver. The more economic capital invested in keeping the price of silver low resulted in more upward momentum once the manipulation ceased or decreased. Hence, the quick, large gains.

Certainly, I believe that the recent gains made in silver might encourage a psychological-top for silver. Many are selling, as these gains seem to good to be true, and there's nothing wrong with a profit. Thus, silver might enter into a period of prolonged consolidation, entailing even a considerable decline in the price down to around $30 or slightly below. To be sure, however, demand for silver as a hedge against inflation and economic warfare might prove to be an enduring support for the price of silver. In other words, the absence of confidence in the ability for the world to avert certain tragedy in the form of wars and economic holocaust will promote a higher silver price; listen to the news.

Bob states that silver may have a couple more days of increases, but the market is tired. He claims that “silver has no more to do with Portugal and their financial problems or nuclear melt down in Japan than it has to do with the price of kitty litter...Hell, half the silver bugs don't know anything about silver, it's the most over rated investment in the universe right now.”

Pet food companies have been struggling with inflation in food prices for the past couple years. Food price rises typically are tied to the increase in the price of commodities like silver. Economic crisis in Portugal could increase physical demand in that country, and then Europe generally, for hedges like silver. Nuclear meltdown in Japan is sure to have ongoing reverberations throughout world markets. In fact, as news rolls in regarding the economic impact of disaster on the world's third largest economy, world markets could see a quickening in their next leg down, as QE programs cannot remedy the economic collapse of Japan, and, in fact, do more damage than good. The week after the earthquake, tsunami, meltdown trifecto, world markets displayed transparent volatility, but rebounded firmly. I think herein lie gains more suspect than those gains made recently in silver.

Furthermore, forthcoming news of the Japanese car industry halting manufacturing will put immense downward pressure on platinum and palladium. Alongside the collapse in prices of these industrial precious metals, gold and silver will rise on momentum from investors, though not industry. (3)

In the near-term, any crisis, like that of 2008, will place downward pressure on precious metals. Silver could drop significantly, but will gain as downward pressure on the USD resumes once investors are done seeking in it a panic safe-haven. If the gains in silver as of late make silver-holders nervous, it might serve them well to ask themselves a simple question: If I exchanged my silver, what would I exchange it for? Certainly FRN's do not offer a promising option. If anything, with gold consolidating between $1,392 and $1,430 for a couple months, maybe exchanging silver for gold anticipating a rise in gold prices and possible consolidation in silver, in the near-term, will do away with the nervousness.

1.Moriarty, Bob. Is Silver Topping, 321 Gold, March 25, 2011

2. Whitehouse, Mark. Numbers of the Week: Food Inflation Foments Political Unrest. Wall Street Journal, March 26, 2011.
3. Alerigi, Alberto, Jr. GM to assess Japan parts problem in two weeks: CEO. Reuters, March 18 2011