The Chicago Mercantile Exchange raised margin requirements on silver futures four times in two weeks. While margin requirements must go up when prices go up, four times in two weeks sure is grist for those who say the big banks are short silver and will do anything to derail silvers bull run.
Disappointment over silvers failure to breach the psychologically important $50 level last week is also a factor. The hot money is moving on to other things for now. This leads to a correction, a normal and necessary part of any bull market.
And then theres simple profit taking many people bought silver at much lower levels and so theyre locking in gains. Certainly big funds run by George Soros and others are doing just that. And you know what, I told my subscribers to do that, too, because theres nothing wrong with taking profits. Silver, gold hit by report of Soros selling.
Bullish forces
Those short-term bearish forces, though, overlay these longer-term, bullish forces:
Industrial demand for silver is enormous. Nearly 75% of the worlds silver supply is used to make everything from chemical reagents to jewelry to solar panels to plasma TVs. And with the global economy expected to grow by 4.5% this year, according to the International Monetary Funds latest figures, that industrial demand for silver is only going to increase.
The decline in the U.S. dollar is threatening to turn into a collapse. The buck recently touched its lowest level against the euro since December 2009, and the U.S. Dollar Index DXY -0.35% was recently off 7.5% just in 2011. For a currency, thats a huge move! Since silver as well as gold and other commodities are priced in dollars, they generally move opposite to the greenback. Its what I call the seesaw of pain somebodys always getting hurt.
Mine supply of silver is tight. While silver fabrication demand grew by 12.8% last year, silver mine production rose by only 2.5%, and mine supply accounts for 70% of all silver supply, according to GFMS. Its hard for miners to crank up silver production because two-third of silver produced by mines is as a byproduct to other metals. Mine supply IS expected to rise this year, but it will be hard-pressed to keep up with the expected rise in demand.
The fundamental fact is that, despite the recent correction, both gold and silver are in big bull markets. Until that changes, pullbacks and corrections are buying opportunities.
China syndrome
The big bullish story in silver is just one aspect of the demand shift were seeing to China and other emerging markets. China used to be a major seller of silver supply into the global market; now its an importer. And its importing more and more commodities of all types. China has a huge and growing middle class who want all the things that big, fat Americans want more food, cars, clothes and jewelry, TVs and other electronics.
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Alternatives to gold and silver
As gold and silver tank, assets besides commodities can hedge against inflation, according to David Goerz of HighMark Capital Management, who recommends high-quality dividend-paying stocks as well as small caps.
And its not just China. According to Goldman Sachs, 70 million people worldwide are joining the worlds middle class each year. In 20 years the middle class will add another 2 billion people, most of them from emerging markets. Many of these nations have a cultural affinity for gold and silver.
So yes, we are seeing some air whoosh out of silvers bubble. But I dont think weve seen the real mania in silver yet. That doesnt mean the metal cant go lower. If the U.S. dollar rallies, that will likely trigger another leg down in silver. If the global economy slumps and theres the potential for that due to stubbornly high oil prices that could knock silver lower as well.
If you want to short silver in the face of strong demand like the 1.3 billion Chinese who seem ready to buy silver on the dips, or the billion people in India ready to do the same thing good luck to you. I think youll need it.
As for me, Im waiting for this silver correction to run its course, then Ill buy again. A 50% retracement of golds recent bull run looks like a likely target, and a good place to re-enter the iShares Silver Trust SLV +2.25% , Silver Wheaton SLW +1.91% and other silver bellwethers.
Good luck and good trades.
Disappointment over silvers failure to breach the psychologically important $50 level last week is also a factor. The hot money is moving on to other things for now. This leads to a correction, a normal and necessary part of any bull market.
And then theres simple profit taking many people bought silver at much lower levels and so theyre locking in gains. Certainly big funds run by George Soros and others are doing just that. And you know what, I told my subscribers to do that, too, because theres nothing wrong with taking profits. Silver, gold hit by report of Soros selling.
Bullish forces
Those short-term bearish forces, though, overlay these longer-term, bullish forces:
Industrial demand for silver is enormous. Nearly 75% of the worlds silver supply is used to make everything from chemical reagents to jewelry to solar panels to plasma TVs. And with the global economy expected to grow by 4.5% this year, according to the International Monetary Funds latest figures, that industrial demand for silver is only going to increase.
The decline in the U.S. dollar is threatening to turn into a collapse. The buck recently touched its lowest level against the euro since December 2009, and the U.S. Dollar Index DXY -0.35% was recently off 7.5% just in 2011. For a currency, thats a huge move! Since silver as well as gold and other commodities are priced in dollars, they generally move opposite to the greenback. Its what I call the seesaw of pain somebodys always getting hurt.
Mine supply of silver is tight. While silver fabrication demand grew by 12.8% last year, silver mine production rose by only 2.5%, and mine supply accounts for 70% of all silver supply, according to GFMS. Its hard for miners to crank up silver production because two-third of silver produced by mines is as a byproduct to other metals. Mine supply IS expected to rise this year, but it will be hard-pressed to keep up with the expected rise in demand.
The fundamental fact is that, despite the recent correction, both gold and silver are in big bull markets. Until that changes, pullbacks and corrections are buying opportunities.
China syndrome
The big bullish story in silver is just one aspect of the demand shift were seeing to China and other emerging markets. China used to be a major seller of silver supply into the global market; now its an importer. And its importing more and more commodities of all types. China has a huge and growing middle class who want all the things that big, fat Americans want more food, cars, clothes and jewelry, TVs and other electronics.
Click to Play
Alternatives to gold and silver
As gold and silver tank, assets besides commodities can hedge against inflation, according to David Goerz of HighMark Capital Management, who recommends high-quality dividend-paying stocks as well as small caps.
And its not just China. According to Goldman Sachs, 70 million people worldwide are joining the worlds middle class each year. In 20 years the middle class will add another 2 billion people, most of them from emerging markets. Many of these nations have a cultural affinity for gold and silver.
So yes, we are seeing some air whoosh out of silvers bubble. But I dont think weve seen the real mania in silver yet. That doesnt mean the metal cant go lower. If the U.S. dollar rallies, that will likely trigger another leg down in silver. If the global economy slumps and theres the potential for that due to stubbornly high oil prices that could knock silver lower as well.
If you want to short silver in the face of strong demand like the 1.3 billion Chinese who seem ready to buy silver on the dips, or the billion people in India ready to do the same thing good luck to you. I think youll need it.
As for me, Im waiting for this silver correction to run its course, then Ill buy again. A 50% retracement of golds recent bull run looks like a likely target, and a good place to re-enter the iShares Silver Trust SLV +2.25% , Silver Wheaton SLW +1.91% and other silver bellwethers.
Good luck and good trades.