Gold Corrects and Silver Crashes

What a difference a day makes. Gold off 8% and Silver down ~30%. Both still up YTD. Not terribly surprised. Both metals were basically going parabolic. But the catalyst for the bull market in precious metals remains. Trump is still going to be president for another three years. 

Wall Street: Silver jumps as retail investors pile in (Updated)

The same crowd that drove up GameStop stock by 1600% while inflicting huge losses on several hedge funds in a coordinated short squeeze have turned their attention to the silver market. Silver has long been the subject of conspiracy theories about mysterious but powerful entities short selling it. The metal was up more than 10% in overnight trading.

Silver is both an industrial and precious metal and its movements can be hard to predict. But unlike GME it is not a stock and the market for silver is huge with multiple avenues for investors to gain exposure. These include stock in silver miners, the bullion backed ETF SLV, physical bullion that can be purchased in bulk on the COMEX or in smaller quantities from local coin shops and online bullion dealers. Also unlike GME, most Wall Street analysts have been bullish on silver (and gold) for a while and silver was already at multi-year highs before the arrival of the #silversqueeze crowd. 

It will be interesting to see where this goes. But one indicator is that I checked my two favorite online bullion dealers this morning to see what they had in stock and what they were charging in premiums (the mark up above spot price for retail oriented bullion). Both of them look like the toilet paper aisle at Walmart did last March. They have been almost completely wiped out of their silver inventory and the little that's left is being sold at extortionist premiums. I would be careful about reading too much into that though. Only a small percentage of silver is refined/minted with ordinary investors in mind so whenever precious metals spike there is often a near term shortage in the small bars and rounds popular with retail investors or collectors. 

Disclosure: I have had a smallish position in silver for several years and do not have any plans to add to or sell any of it in the immediate future. But if the price goes nuts... 

Update: No surprise. The rally fizzled as silver has given up almost all of its gains. And in related news GameStop is also falling like a rock as the short squeeze ends and people realize they were paying hundreds of dollars for a company whose stock is probably worth no more than $25 a share in fair market valuation. A few people made a ton of money. but a lot of the folks late to that trade and those who didn't realize that it was already over, are getting hosed. They can join the hedge fund guys in licking their wounds. 

Wall Street is a rough neighborhood. 

Silver

It's no secret that precious metals have been in a bear market for around the last seven years. Lately silver has been taking a beating that in another age would have been associated with the parlor rug. Since peaking in 2011 at just a tick under $50.00 oz silver has been in a steady downward decline that has reached the point where the spot price closed today at $14.22 oz. Even more interesting is its relationship to gold. The silver/gold price ratio (the number of ounces of silver needed to equal 1 oz of gold) has fluctuated, at times dramatically, over the last 45 years or so since gold was demonetized. But the average has been in the range of 50:1 give or take.

Currently it is within spitting distance of 85:1.

No, that's not a record. See these historical charts from Kitco. But it is the highest it's been in a quarter century. And on the rare occasions when the ratio has gotten over 80:1 it has been a signal that silver, at least relative to gold, has become over sold and is cheap.

Hmm...

[Full disclaimer: I have recently added some silver to my precious metals holdings on a speculative basis. Nothing posted on this blog should be considered investing advice. The above is purely for informational purposes and readers should do their own due diligence before making any financial investments.]

US to drop silver manipulation case

(Reuters) - U.S. regulators are set to drop a four-year investigation into the possible manipulation of the silver market after failing to find enough evidence to support a legal case, the Financial Times reported on Sunday, citing three people familiar with the situation.

The Commodity Futures Trading Commission first announced that it was investigating "complaints of misconduct in the silver market" in September 2008 after a group of precious metals investors alleged manipulation, the FT reported.

It said that while the CFTC has not yet formally determined the outcome of the investigation, leaving the possibility that staff could be instructed to dig deeper, the agency does not currently have sufficient evidence to bring a case.

Read the rest here.

Dollar plunges as gold and silver break records

NEW YORK (Reuters) - Silver soared to an all-time high on Thursday and gold rose to another record, as a falling dollar and signs that the Federal Reserve would maintain a loose monetary policy boosted precious metals' appeal as a hedge against inflation and economic uncertainty.

Silver briefly climbed to within a whisker of $50 an ounce, eclipsing the peak hit when Texan brothers William Hebert and Nelson Bunker Hunt sought to corner the silver market three decades ago. The metal later pulled back on technical selling.

"Yesterday's speech from the Fed was an acknowledgment of the continuing of the strategy by the Fed and Washington ... to monetize our debt, and basically to devalue the dollar," said Robert Lutts, chief investment officer of Cabot Money Management, which oversees more than $500 million in client assets.

"The metal markets are recognizing that and it is being priced in. What monetization means is that, down the road, we will have more inflation," he said.

Read the rest here.

NY Times: A Conspiracy With a Silver Lining (illegal price manpulation)

As Americans know all too well by this point, commodity prices — for corn, wheat, soybeans, crude oil, gold and even farmland — have been going through the roof for what seems like forever. There are many causes, primarily supply and demand pressures driven by fears about the unrest in the Middle East, the rise of consumerism in China and India, and the Fed’s $600 billion campaign to increase the money supply.

Nonetheless, how to explain the price of silver? In the past six months, the value of the precious metal has increased nearly 80 percent, to more than $34 an ounce from around $19 an ounce. In the last month alone, its price has increased nearly 23 percent. This kind of price action in the silver market is reminiscent of the fortune-busting, roller-coaster ride enjoyed by the Hunt Brothers, Nelson Bunker and William Herbert, back in 1970s and early 1980s when they tried unsuccessfully to corner the market. When the Hunts started buying silver in 1973, the price of the metal was $1.95 an ounce. By early 1980, the brothers had driven the price up to $54 an ounce before the Federal Reserve intervened, changed the rules on speculative silver investments and the price plunged. The brothers later declared bankruptcy.

The Hunts may be gone from the market, but there are still plenty of people suspicious about the trading in silver, and now they have the Web to explore and to expand their conspiracy narratives. This time around — according to bloggers and commenters on sites with names like Silverseek, 321Gold and Seeking Alpha — silver shot up in price after a whistleblower exposed an alleged conspiracy to keep the price artificially low despite the inflationary pressure of the Fed’s cheap money policy. (Some even suspect that the Fed itself was behind the effort to keep silver prices low, as a way to keep the dollar’s value artificially high.) Trying to unravel the mysterious rise in silver’s price is a conspiracy theorist’s dream, replete with powerful bankers, informants, suspicious car accidents and a now a squeeze on short sellers. Most intriguingly, however, much of the speculation seems highly plausible.

Read the rest here.

Yet again I observe that banks are the enemy.

Gold and Silver surge after FED announces more money printing

The US Dollar Index fell sharply as gold and silver both rose to new records. Stocks also made large gains as investors appeared to be looking for investments that would offer protection from currency debasement.

The US Dollar Index dropped below $76 and is (as of this posting time) at $75.92. The DOW rose by 220 and the S&P 500 by 23 returning to levels not seen since the early days of the panic of 2008. Gold and silver however posted the strongest gains, rising by 3% and 6% respectively. Gold settled at $1392 oz (within striking distance of $1400) and silver at $26.39 oz, a high not seen since the great silver boom of the early 80's.

An "I told you so" moment for conspiracy theorists?

Federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals market, The Post has learned.

The probes are centering on whether or not JPMorgan, a top derivatives holder in precious metals, acted improperly to depress the price of silver, sources said.

The Commodities Futures Trade Commission is looking into civil charges, and the Department of Justice's Antitrust Division is handling the criminal probe, according to sources, who did not wish to be identified due to the sensitive nature of the information.

The probes are far-ranging, with federal officials looking into JPMorgan's precious metals trades on the London Bullion Market Association's (LBMA) exchange, which is a physical delivery market, and the New York Mercantile Exchange (Nymex) for future paper derivative trades.

Read the rest here.

Various conspiracy theorists have long argued that there is widespread price manipulation in the precious metals markets.