Disclosure: I expected the triple bottom in gold and silver to hold. It did not! Silver came lower (from $19.28 in August to $17.26 on October 29 to under $16 on October 31) and then gold plunged below $1179 to about $1,140. The double impact of slowing world growth leading to unexpected flight to the US Dollar and Bank of Japan’s sudden announcement of its own huge money printing policy [both events have created a stronger US dollar environment that is not good for commodities] have had a huge negative impact on commodities over the last few months.
What Happens Now?
Prices have been disappointing since the 3rd Quarter. EVR Bullion is not alone among analysts expressing surprise. Capital Economics reported bewilderment at the price this year "given that industrial metals prices have been more resilient and industry accounts for about 60% of global silver usage."
Obviously they show silver prices falling. Prices have collapsed, technical indicators are deeply “oversold” [RSI Indicator on the daily chart is massively below 30% at 13.52%!!]. The indicators are “oversold” on quarterly, monthly, weekly and daily charts. Expect prices to rise when they are finally ready to/allowed to rise. When? Oversold conditions are usually corrected with rallies. The more “over-sold” the more likely a strong rally will develop.
What do I think?
When the data does not confirm the expectation, it is time to revisit the plan. So, back to basics…
- Silver is an industrial commodity used in nearly every electronic device produced worldwide. 60% of global supply goes to industry each year and the mining sector reports operating costs are $21/oz.
- Price has traded around $19-20 for most of the past 18 months, mines have dramatically cut on exploration costs so no new supplies of silver in the near future.
- When the price hit $17/oz last month, the largest mine in the world First Majestic cut production by a staggering 35% due to low prices….and now it’s come lower. These prices will force the mining industry to aggressively consolidate further. There will be casualties. Eventually supply of gold and silver will decline and prices will rise.
- Demand for Silver coins has continued soaring in recent weeks, with precious metals traders in Europe, America and Australia reporting shortages. In the last four business days, the U.S Mint has sold 2,685,000 silver eagles, nearly twenty times their daily production rate. It is now reporting that its out of silver for the indefinite future.
What does it mean?
The more gold and silver have fallen, the more “weak hands” have bailed out and moved to cash or buy something they hope will move up. Declining prices have increased speculative buying to near record levels. Eventually gold and silver will rally and the spike up will be as powerful as the crash down. Smart money doesn’t enter a market that is going to decline much further, they enter near the bottom buying everything everyone else has given up on. Buy low and sell high, or sell short high and buy low. It is much easier when a trader has the inside track knowing when the paper market take-downs will occur
But WHEN will gold and silver prices rally?
The long answer short, metal prices have been crushed but overwhelming demand has accelerated, meaning metal prices will rocket. Supply is getting cut drastically from mines, and dealers are already reporting difficulty in completing orders. Premiums will rise and prices will eventually follow. And yes, buying now is a very good idea. Higher prices for gold and silver are coming.
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