Thursday, May 5, 2011 3:42 PM EDT
Recent days saw silver prices climb to record highs then
crash! At least that's what the media tells us. Put yourself back
in time, just 8 months, when silver prices hovered near $20 an ounce
and imagine hearing that 8 months from now silver would experience one
of its biggest sell-offs in history and fall to just $30 an ounce. How
easily we get spoiled when making money is as simple as watching a
If you were to speculate back then, as to what could drive silver to record highs in such a short time, I believe the consensus would be, central banks and governments are beginning to stockpile silver as well as gold. Certainly, the belief would not be that Mom and Pop investors were about to buy so much silver that it could drive the price to double or triple.
In an attempt to explain the drop in price, many attribute the sell-off to an announcement that George Soros was selling his silver. I have a hard time believing one person has the ability to move a market to such extremes. I am truly amazed how, a leak from an "un-named source close to the Soros situation", gets so much play in the media.
I am always suspicious of "leaks." I believe leaks have a purpose. Surely, if someone like Soros has the ability to move markets, he would not leak information while he was selling. That would be like the catcher telling the batter a fastball is coming down the middle of the plate.
There was a slip in one report that said Soros had been selling for weeks. If that was true, then, while Soros was selling, the price was going up. That means the market was absorbing all he could sell and the price was still rising. So, if he was out long before the news was leaked, why leak anything? What could be the purpose?
As we hear the media discuss reasons silver is selling off, it's funny how we only hear the word "selling," as if there are no buyers. We forget, there can be no sale without a buyer. So, while some look at the correction in silver prices as a sell-off, obviously, others look at it as an opportunity to buy-up - to harvest, if you will. There is never any more buying than selling taking place or vice versa.
Now we ask, why would anyone want to buy? The answer may be as simple as, "because nothing has changed!" We still have a mountain of debt we cannot pay, unemployment is still rising and the debt situation is getting worse by the second. Inflation fears may have subsided for the moment, but I think that is only "transitory."
If nothing has changed, and Soros did indeed sell, then why? I say, why not sell if there is a reasonable chance of being able to take profit and buy back later? Then, once you sell you leak the news and try to have some effect on the direction the market takes.
While I still do not believe Mr. Soros can single-handedly move markets, I believe that news, coupled with some other events, have had significant effect on the silver price. First, margins for Comex silver futures were raised three times making it more difficult to leverage contract purchases. Secondly, the dollar index, which traded as high as 81.35 on January 10, 2011 ended a free-fall that saw it dip as low as 72.71 by May 2. Currently, the dollar index is 74.05. The index was perilously close to its all-time low set in March 2008, where it traded as low as 70.67. Then, it reversed course as European trouble hammered the Euro resulting in the dollar recovering some of its losses.
Throw in a few comments by Ben Bernanke, that would have people believing there are no plans for QE3 - not yet anyway - and you have the formula for falling prices. If you look at gold charts you will see plenty of points in the last 10 years where everyone said the gold bull market is over.
Perception is reality and right now the perception is that we have kicked the can down the road far enough that it is temporarily out of sight. The reality, however, is nothing has changed. There is still strong evidence central banks are accumulating gold and silver in anticipation of further weakness in all currencies. So which is it? Sell-off or harvest?