Well it has certainly been an interesting few days in the precious metals markets. And to think, just last week silver was trading around the $28.00 mark. The precious metals have seen a drop of impressive magnitude, and it is unclear yet if the bloodshed is over.
This drop in prices represents a massive long liquidation and was set in motion but no clear single catalyst. The fact is, since putting in the highs of last April, the silver bulls have not been able to sustain any meaningful rallies to the upside and prices have continued to make lower highs on the monthly chart.
Like gold, silver had become range bound on the weekly chart, and once this range was breached to the downside an avalanche of sell stops was triggered and the market has simply not looked back since. After trading all the way down to the $22.00 level, the market is attempting to find some footing here but still looks precarious.
The precious metals are not finding help from elsewhere. The oil market continues its slide, and the greenback firmed up quite a bit again today, and may not be ready to “roll over.” These markets could play a key role in silver’s ability to plug the leak. In addition, it appears that equities could be entering the beginning phases of a correction, and if that is the case, metals would likely be affected although at this point it is difficult to tell whether or not this would be bullish or bearish.
Unlike gold, silver has industrial uses and therefore may be more vulnerable to a broad commodity and risk asset sell off. Following some softer data from China and the U.S., many are now worrying about a period of deflation setting in. Should asset prices continue to slide, silver would likely be vulnerable to additional declines.
Demand for physical gold and silver bullion has remained robust during this period of market chaos. Silver coins have been flying off of dealer’s shelves at a very fast rate. This demand for the physical metal may be its saving grace. If demand for bullion stays consistent at current levels, then perhaps the worst is over-it is just too early to tell.
The reality is however, that nothing fundamentally has changed in the last week or two. All of the reasons to own silver are still present. Global sovereign debt issues, money printing by central banks, and geopolitical risks remain. The market has seen some nasty selling, yes. But in the end, the market will likely see calmer days again, and this may prove to have been nothing more than a chance to buy silver at lower prices.