Silver Investing–Chart Update

The silver investing price chart below, compliments of kitco.com, is a 1-year chart ending March 30, 2012.  It doesn’t look good if you are a silver bull.  The major trend on this 1-year chart is an intermediate term downtrend, labeled “trend 2.”   I made my last post about a month ago, the day after price closed at $35.57, fifteen cents above former price resistance of $35.42.  I stated that it was time for short-term investors to go long.  It was a very short trade.  The opportunity to make money to the upside lasted only a few days

silver investing chart

The price of silver closed above the intermediate term trend line on February 28th, 2012.  Closing above “trend 2” was a very bullish sign, especially since price did not hesitate or approach the trend line a time or two and pull back before crossing.  But all that changed drastically a couple of hours into the next trading day.

What happened?

Silver followed gold down.  That’s what happened.  But why did the price of gold drop $100 intraday and close down about $80?

It’s complicated . . .

Take a look at the 60-day gold price chart below.

Apr12silver1 Silver Investing  Chart Update

At ten AM on February 29th, 2012, Ben Bernanke, Chairman of the Federal Reserve, made public comments.  A few minutes later, the price of gold dropped about $100 in thirty minutes—and the price of silver along with it.

Market pundits concluded that it was something Bernanke said—that it was a reaction to his somewhat positive statements about the economy and interest rates.  When one is on live TV and something significant happens, one must comment.  But nothing Bernanke said or implied should have had such an effect on the price of gold.

As it happened, the price of gold swooned when a million ounces of gold was put on the market.  First, this was not real gold, but futures contracts representing a million ounces of gold.  Not many people who own physical gold seem to be selling it.  Still, a million ounces dumped on the futures market all at once is quite a lot; about $1.8 billion.

When the price of gold drops $100 per ounce, the holder of a million ounces of gold futures loses $100 million— in under an hour!   If you held a million ounces of gold futures and something Bernanke said caused you to want to close out your positions/s, wouldn’t you sell a few thousand ounces every few minutes?  Or maybe even stretch the sale out over a few days to keep the price from collapsing?

Maybe the timing was just coincidence.  Maybe some single entity that was smart enough to amass such a position was stupid enough to put it on the market all at once a few minutes after Bernanke spoke.  Not likely.  And if the million ounces was not all from a single seller, but from two or more, then it was a coordinated event.

Knowing this information makes it clear that a powerful person or persons with a lot of money wanted the price of gold to swoon.  The timing with Bernanke’s speech was an attempt to disguise that fact.

The million ounce sale took gold down, and will keep it down awhile—and silver with it.  But it was done at great cost.  It will probably happen again; maybe multiple times.  But eventually the fundamentals will win out with gold.  Then it will be silver’s turn.

The only sure short-term bet on gold and silver is that both will be volatile.

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