Silver Survey
How low will it go?
There is no question that precious metals have been pummeled lately and anyone who has been long the sector has seen their portfolios bleed red. As of Friday, Sep 5 2008 silver closed down nearly 5% at a new 12 month low. It has decisively broken through lows set earlier in the summer and is in a technically poor pattern.
Reasons for silver to continue going down:
- Silver has ended the week on a low and decisively punched below support.
- Silver is acting weak even when bullish news occurs (Friday's high unemployment report and August's war in Georgia).
- The precious metals stocks are performing worse than the metals (many technicians say that the stocks lead the metal).
- According to some sources (Lombard Street Research) M3 growth has dropped from nearly 17% to almost zero in the past few months, pointing to deflation ahead.
- Money is being destroyed as real estate values collapse, loans are defaulted on and stock prices sag. With M3 growth stalling, money destruction appears to be outpacing money creation right now leading to a reduction in price for all assets.
- Silver is going to continue to be caught up in commodity-based demand destruction as the recession deepens.
- There is some evidence that manipulation is being used to suppress the market, and if this is true, there is little evidence that the manipulators will need to stop anytime soon.
In spite of the poor performance and technical condition of silver, there remains strong fundamental factors that argue for stronger performance in the near future.
Reasons for silver to recover now:
- A bailout of Fannie & Freddie looms next week. This will likely involve a massive and inflationary injection of funds from the Fed.
- Housing prices continue to slide, guaranteeing more bad loans and more inflationary bank bailouts in the future.
- There appears to be a shortage of physical metal (at least of small denominations).
- High unemployment figures released Friday will limit the Fed's ability to raise interest rates and even pressure them to lower again.
- Silver is technically very oversold (of course it has been for a while).
- According to other sources M3 growth has slowed a bit but certainly not gone to zero (ShadowStats -> 12%, NowAndFutures.com ->12%).
- Whatever M3 is doing, money supplies in other countries continue to expand at double digit rates.
- Commercials are starting to go long.
- If the market is being manipulated lower, history shows that eventually all manipulations fail and when they fail they usually fail both suddenly and dramatically.
Sentiment
So what do you think is going to happen to the silver saga next? Will it continue to be tarnished or will the story have a silver lining? StockReflex is trying to gauge the current sentiment out there for precious metals by introducing a new pricing survey. Simply let us know when and where you think the price of silver is going. We'll collect the information and share the results with you!
