Fundamental Trading Diary

Fundamental analysis of the capital markets

Silver

There is a queer divergence between silver and gold.  While gold is within 30% of its all-time high, silver just bounced off $8.66 an ounce – down from $20.73 in May.  At the same time, physical silver seems to be difficult to come across.  Here in the United States, banks have ceased to broker it.  There have been reports from people who bought silver certificates that they are unable to redeem them for silver.  Additionally, there seems to be a shortage of retail silver (and platinum) in general.  A few people other than me have noticed.

So – why is silver priced below $10 while there is apparently a mass shortage?  There are two possibilities.  First is that there is some big supply which everyone but me knows about that hasn’t been released yet.  The second — and more probable — is that some big players are pushing the price down using derivatives and hoarding the physical commodity.  This wouldn’t be the first time the silver market has been cornered.

The secondary argument for silver is that it will gain from a flight to safety in either a highly inflationary or deflationary scenario.  As central banks around the world create more and more money in an attempt to reflate the credit markets, this will cause money to chase the best priced and soundest assets – silver will go up in price.  If it implodes, precious metals will be used as a safe haven for wealth and value.

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October 27, 2008 - Posted by | Uncategorized

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