Silver is sinking even further this morning, as investors follow George Soros and John Burbank in dumping the precious metal.
China Buying Silver
Silver on Tuesday suffered its worst one-day drubbing in three decades. In a troubling sign for silver bulls, silver futures are down to about $40.45 per troy ounce, down more than 12% over the first two days of this week. Gold is unchanged, highlighting the difficulties silver is having.
For months, professional and individual investors piled into silver to protect against weakening value for the greenback, and to guard against a pickup in inflation. Precious metals often serve as an alternative to paper currencies.
The U.S. dollar has fallen 9% so far this year compared with a basket of major currencies, through Tuesday, boosting the silver trade. Many smaller investors favor silver investments over gold, partly because silver is more affordable, earning it the sobriquet “the poor man’s gold.”
Gold and silver are tentatively higher after their 2% and 8% falls yesterday. In silver, speculators on the COMEX continue to liquidate on mass after margin was increased a massive 84% and various stop loss levels are hit, leading to further falls in the futures market.
Cross Currency Rates
Absolutely nothing has changed regarding the fundamentals driving the gold and silver markets and this will likely be another correction in gold and another sharp correction in silver.
Gold and silver’s rise is likely to continue until we return to a world of healthy economic growth, low inflation and positive real interest rates.
Gold in US Dollars – Bloomberg Adjusted for Inflation 1971 to 2011 (Monthly)
It is important to put the falls in gold and particularly silver in context and as ever focus on the long term. The long term inflation-adjusted charts put the gold correction and silver crash (above and below) in perspective and show both as being buying opportunities again. Although buyers should consider dollar cost averaging into position in order to mitigate any further price weakness.
With macroeconomic, monetary and geopolitical risks remaining high – including the threat of terrorism and war – safe haven demand from investors, pension funds and central banks is likely to continue.
The usual gold and silver bubble callers are out in force once again and it is interesting how there appears to be more coverage of gold and particularly silver now than there was with prices rising in 2010 and early 2011.