Silver’s Paper Driven Sell Off to Be Confronted by Continued Significant Physical Demand
Gold stabilised in Asian and early European trading prior to a 1%
fall, while silver’s sharp price fall continues and silver is now down
20% in USD terms in 5 days. The huge and unprecedented increase in
margin in the paper silver market has forced some weak hands out of the
silver market and allowed the concentrated shorts on Wall Street to
press their advantage to the downside.
Gold to Silver Ratio – 1971 to Today Gold (orange), Silver (yellow) and Gold/ Silver Ratio (white)
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Both gold and silver’s sell off are healthy and are due to them
becoming overbought in the short term (particularly silver) and this is
once again a paper profit taking and technical driven, speculative sell
off as seen in the surge in frenzied dealing and large spike in
trading volumes in silver futures in New York.
Gold’s resilience is further confirmation of massive buying of gold
by creditor nation central banks which should reassure bullion owners
and offer support to silver.
Silver in Nominal USD Terms – 1971 to May 2011 (Weekly)
Some nervous physical silver buyers and more speculative physical buyers
have sold today and this week but those buying for diversification and
financial insurance are strong hands and have not sold. Indeed,
physical buying and buying the dip has continued yesterday and today.
A correction, possibly sharp, was expected after the 28% rise in
prices in April alone and the sharp rise seen so far in 2011. Support
may be seen at $35/oz but experience shows that paper driven sell offs
in the futures markets in New York can surprise to the downside.
Cross Currency Rates
Inflation risk (and the possibility of stagflation and hyperinflation)
today mean that cash can become trash very fast and thus international
equities, international government bonds (high credit; very short
duration) and gold remain prudent asset allocations.
The cash component of a portfolio should probably include some local
currency and a combination of creditor nation fiat currencies and of
course silver and gold.
Savers need to protect themselves from local currency risk and
diversifying savings through ownership of bullion continues to be
Gold is trading at $1,501.40/oz, €1,012.54/oz and £910.27/oz.
Silver is trading at $37.72/oz, €25.45/oz and £22.87/oz.
Platinum Group Metals
Platinum is trading at $1,796/oz, palladium at $720/oz and rhodium at $2,250/oz.