The Almost Unbelievable Silver Roller-Coaster Ride

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Does it Matter If Poor Cyprus Liquidates its Entire Gold Holdings? – Did Precious Metals ETF’s Actually Sink Silver and Gold Prices? – Was Global Deflation the Culprit for Falling Silver and Gold Prices? – Has the Secular Bull Market in Silver and Gold At Last Come to An End?

The Almost Unbelievable Silver Roller-Coaster RideYou will notice an exciting, new, and different approach to the silver market weekly update as of this week’s edition. In light of the recent mysterious and much talked about plunge in silver and gold, we found it necessary to come up with better and deeper explanations for silver market related events than what the mainstream media is offering.

From now on, you will not only read about what the mainstream media is telling you in this newsletter. You will also get the perspective of what is wrong with their analysis. After all, the mainstream media is always contradicting itself with its explanations for major moves in all of the financial markets, not just silver and gold.

Finally, you will now read more behind the scenes analysis and perspective here. This is in your best interests, as you probably came to this site in the first place to learn what is really happening with silver (and its big brother gold). And so without further ado…

Silver and Gold Take a Swan Dive Off of a High Cliff

To say that these are the times that try men’s souls would be an understatement. In the week that ended Friday, April 19th, you saw silver and gold take a swan dive off of a high cliff. This happened despite the fact that the United States was successfully attacked by the blood thirsty terrorists for the first time since 9/11.

According to our traditional understanding of the precious metals as safe haven assets, the opposite should have occurred with precious metals prices. On and in the days immediately following 9/11, gold itself rallied around 25%!

Silver Price Week April 12 - April 19 2013

Silver Price Chart – Week April 12 – April 19 2013

 

In the spot market Friday, silver managed to rally to some kind of a comeback level after the past weeks’ and days’ eye watering declines. The white metal opened Monday, April 15th spot markets at $23.35. This represented an incredible 10.3% gap down from the prior Friday spot markets close of $26.02.

The Almost Unbelievable Silver Roller-Coaster Ride

Silver reached as low as $22.24 in spot markets this past week. It rallied as high as $23.86. By the time the dust had settled in spot markets Friday at the close, the white metal sat at $23.25. The almost unbelievable roller-coaster ride saw silver in a spot market range of $1.62 during the spot market week. This happened after it had already opened down by nearly three dollars per ounce from the prior Friday spot market close.

Mainstream media had its own basket of theories to help explain the collapse in precious metals prices. These ranged from “Cyprus is selling all of its gold – run for the hills” to “the secular bull market in silver and gold is over” to “no one honestly knows what has happened to the prices of silver and gold or why they tanked.” The truth is that these theories are completely off base. Sadly enough, they are partly intended to deceive you and to separate you from your precious metals holdings.

Does it Matter If Poor Cyprus Liquidates its Entire Gold Holdings?

Investment bank Nomura was quick to point out that there are few superlatives that are strong enough to describe the massive move down in the precious metals this past week.

Among the many theories that the mainstream media threw down to help explain it was that Cyprus is selling its gold. The idea is supposed to be that when Cyprus regretfully liquidates its 40 tons of gold holdings, this will panic and spook the gold and silver market.

Beyond that, it could mean that the big bad IMF, EU, and European Central Bank will force other more serious (financially troubled) countries like Italy and Spain to sell their more considerable gold reserves. Market and credit analyst Egan Jones’ very own Sean Egan claimed that even a little selling by central banks can rock the gold market.

The Cyprus Theory Has Not Yet Begun to be Proven

Sean Egan was right about one claim anyway. The Cyprus theory has not yet begun to be proven. The financially wrecked Cypriot nation is still debating whether they will actually sell even a single ounce of their precious gold reserves, their only national treasure.

If they do, 40 tons will not amount to much in a world where central banks buy and sell literally thousands of tons of gold per year. As for the possibility that the evil empire of the IMF, EU, and ECB will be able to force the fiercely proud, independent, and still fully sovereign nations of Spain and (G-8 member) Italy to sell their treasured gold reserves, you can be the judge of that for yourself.

This theory about why the precious metals prices plummeted just does not hold much water, if any at all.

Did Precious Metals ETF’s Actually Sink Silver and Gold Prices?

Mainstream financial media also reported this past week that a new side of the silver and gold markets’ trade reared its ugly head in the recent crash in precious metal prices. Exchange traded funds, or ETF’s, have allowed the “working man” people of the world to trade silver and gold like they would a stock.

You can do this yourself when you acquire shares of SLV or GLD. These are the two name brand, and incidentally most popular, ETF’s for the silver and gold markets.

Financial media’s next theory on the metals’ markets crash boiled down to the fact that the average working class stiff got scared when silver and gold prices started to tank. These are smaller investors who can not afford to watch their 401K’s or IRA’s decline and sit idly by.

They lack the will and resolve of institutional investors, like university endowment funds, pension plans, and mutual funds. They certainly do not have the stamina and stay in power of  the all powerful (wildly reckless money printing) central banks.

Over 150 Million GLD Shares Were Traded!

To give you an idea of how volatile the trading in the precious metals’ ETF’s actually were, the media held up the statistic on GLD during the two market days of panic. Over 150 million shares were traded.

This represented more than the combined volume in the 16 days prior to the two day sell-off. They call this panic selling on Wall Street. Greenberg Capital’s own David Greenberg suggested that the effects of ETF’s on the precious metals market during a time of panic selling have never before been tested.

This sounds like a reasonable theory at first glance. It is true that when there are more buyers than sellers in a market, prices will inevitably decline. But let’s examine the actual behavior of the small players in silver and gold recently.

Physical holdings of silver were actually on the rise during the panic sell off!

Precious metals analysts and coin dealers reported that there was an intense amount of interest in silver Eagles last week. Even when the price plummeted during the crash, they saw a great deal of orders. The U.S. mint had already sold over 2.22 million ounces for the first half of the month of April.

On a full month basis, that would put them over the 3.37 million ounces sold in February and the 3.36 million they sold in March. David Morgan, Silver-Investor.com analyst, reported that the backlog orders on silver coin products are two to three months long.

That does not sound like there is a huge amount of real silver being sold by the smaller players!

Even as the price of paper market silver declined, the price of physical, tangible silver coins held up. Late Monday at the peak of the crash in silver prices, one ounce Silver Eagles were selling for $4 more than the official price of silver. You guessed it – silver prices for actual silver bullion and coins that you can hold, see, and spend have not really declined at all.

The World is Dumping Silver and Gold Is Nonsense

As far as the nonsense notion that everyone in the world is dumping silver and gold, think again. Physical demand for gold and silver is raging in Asia since the precious metals went on sale. Reports out of the continent last week showed that both Indian and Chinese citizens literally snatched gold and silver off of the shelves. There were stories of retail stores in Asia that literally ran out of gold coins and bullion to sell…

Was Global Deflation the Culprit for Falling Silver and Gold Prices?

Some analysts this past week argued that global deflation is in the cards. If this is true, then the prices of real assets would be declining. This argument attempts to explain how silver and gold prices can be dropping even as massive amounts of worthless fiat money are printed by the central banks of the U.S., Japan, Great Britain, and now even the European Union’s ECB.

Could it be that the worst possible nightmares of Central Banks the world over are coming to pass? Will prices of hard assets like precious metals drop precipitously? If they do, this would cause the debt loads that ruinously indebted countries such as the U.S., Japan, Italy, and Greece carry to implode under their own weight. This is precisely what makes the notion of deflation so much more ridiculous than inflation, or higher prices of hard assets, goods and services.

Do not think for one minute that the all powerful central banks of the world are going to let this happen. They can print and have already printed practically limitless mountains of fiat currencies to stop deflation from ever occurring.

Just ask Federal Reserve Chairman “Helicopter” Ben Bernanke how long it took him to more than triple the supply of U.S. dollars. He once famously quipped that if he had a big enough helicopter and pile of paper dollars on hand, he could save the nation from economic collapse.

He would simply fly around the U.S. in the chopper and throw out money to the grateful populous below. In practice, this kind of attitude would never allow deflation to occur. Silver and gold prices are not declining over it.

Has the Secular Bull Market in Silver and Gold At Last Come to An End?

Now at last you come to the all important question that the mass media put to us all this past week. Gold has plunged over twenty-five percent from the bull market peak of a few years ago at $1,890 and change.

Silver has tanked from its bull market high of nearly $50 per ounce to $23.25. This means that silver is now down over fifty percent in the last few years. You might forgive the talking heads for asking if silver and gold’s best days are behind them. So what really caused the precipitous decline in silver and gold this past week?

Silver Price Chart - April 2008 - April 2013

Silver Price Chart – April 2008 – April 2013

 

The best answer to this question comes from legendary commodities’ investor Jim Rogers. The much loved yet slightly eccentric billionaire based in Singapore had this to say about the decline in gold and silver prices.

Precious metals are long overdue for a correction.

In fact, Rogers has been looking for a significant correction in the complex for years now. This does not mean he thinks that the bull market in gold and silver is over. Quite the opposite is true if you listen to the man’s interview.

Jim Rogers coyly ended the question and answer session with these astute remarks. He is buying more precious metals on the pullbacks. If gold and silver pull back even further, then he will buy even more of them. Most famously of all, the legendary commodities guru said this – precious metals are not something that Jim Rogers sells. They are something he leaves to his children.

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