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Just a couple weeks ago, silver prices were soaring, so were gold
prices albeit, not so fast! For months, leading up to the
rapid rise, stories of a short supply of silver were
pervasive. The U.S. Mint was experiencing record sales and
ran out of the ever popular American Silver Eagle Coin. In
addition, 100 oz. bars were reported, by some, as unavailable for
months out.
In January of 2011, Jason Hamlin released a
report
that summarized well, the story of a growing silver shortage.
Investor demand is rising as is industrial demand. Just as
Gold has taken on the role of reserve currency so has silver.
And, in the world of nanotechnology, silver is being used more and
more every day in a manner that prohibits reclamation. Once
nano silver is used it is gone! (
learn more
)
On February 9, 2011, a Financial Times article reported that silver
on the Comex was
"in a nearly-complete state of backwardation - that curious
situation where the price for future delivery of the metal is lower
than for immediate delivery."
In other words, you can buy silver today for less than the current
spot price. It is widely believed the Comex, in a run on
demand for physical delivery, could not come close to meeting
demand. Hence, more upward pressure on the price of
silver.
Indeed, the formula for rising silver prices was brewing despite
claims today, that there were no fundamentals supporting the
pre-crash rise. I guess supply and demand don't count.
In addition to supply and demand fundamentals, we also had a
declining dollar index. As recently as January 2011, the
dollar index reached a four year high of 81.35. While gold
and silver prices were peaking, the dollar index had dropped to as
low as 72.72, just a whisker away from falling below an all-time
low reached in March of 2008. I guess that doesn't matter
either.
Agreed! The last $5 of silver's move higher, was
peculiar. In fact it occurred over the long Easter holiday
weekend. The Thursday prior to Easter Sunday, silver traded
at $46 an ounce or so. Over the long weekend it reached just
pennies short of $50 an ounce. The same thing happened the
next weekend. By Monday, bubble warnings were flying
everywhere as a selling rally was induced.
Obviously, this sparked a serious round of profit-taking, which
should be expected after such dramatic rises. The media spun
it in a more spectacular fashion. Silver demand and gold
demand had peaked and now the bubble had burst and the long ride
down to nowhere had begun. The geniuses all had perfect
explanations for the decline, although it's hard for me to recall
any who made the call higher as silver began to take its place as a
highly-demanded currency alternative and industrial phenom.
A series of peculiar news events contributed to the sell-off.
Comex increased margin levels on silver futures contracts, a source
close to George Soros conveniently leaked news that Soros was
selling and news of lingering European debt problems - which have
really never gone away - resurfaced at just the right time to
create a selling hysteria.
The dollar index climbed briefly above the 75 mark today. We
will see how long the dollar can stay strong as the entire world
seems to be competing to make their currency the weakest.
Silver currently trades above $37 an ounce and gold is once again
perched well above the $1500 mark.
For the moment, silver seems to be surviving the selling hysteria
and here we are, back to a level where we once again look to the
fundamantals that do not exist. If supplies are indeed short,
then those who were accumulating pre-crash silver will take
advantage of the opportunity to resume buying and
accumulating. If dollar strength is short-lived, then that
could once again be a key driver to higher gold and silver prices
as well.
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