What a tumultuous last week for commodities. We saw an incredible collapse in the prices of commodities across the board, but none like silver.
To me, it is manna from heaven. I have been buying silver since Friday in small doses and would advise you to consider the same. It is selling at a 20 percent to25 percent discount to the highs of a week and half ago, and this deal will not last (as it has already started scaling back up).
Here is why I do not believe that this sale price on silver will last:
First, the cause of the silver crash was the perfect storm setup for silver. Yes, the parabolic rise in silver begged for a correction. And yes, I am glad the correction has come.
Next we had assistance from the CME (Chicago Mercantile Exchange), which raised the margin requirement three times in the very recent past to try and reduce the demand for silver by traders.
When traders buy commodities, they are required to deposit a portion of the value of the trade (margin) to ensure that they have reserved liquidity for the trade and that their attempt at the leveraging of the trade is controlled.
Finally, the last kick in silver’s side was the announcement by George Soros that he was liquidating his Silver position. This led to the panic in the markets and then black box trading added to the chaos.
As you can see, none of the reasons for the silver crash were fundamental in nature.
The growing deficits (in the United States in particular, and globally in general) have slowed down.
The risks of rampant inflation (due to excessive printing of money) are not falling.
The risks of default are continuing to stay high, if not higher.
And finally, the demand for silver as a reserve currency by central banks and common man in Asia has not diminished.
So as long as the fundamentals are in place, and the perfect storm subsides, we will see the prices of silver go back up and the short-term drop will be a distant memory in the rear-view mirror before the summer is done.
In fact, Deutsche Bank AG has just announced that they are expecting gold may hit $2,000 per ounce by January next year. And if we even get to half that gain before the year is out, I expect to see silver hit $75, if not higher during the same time frame.
While I could be wrong, and we could further corrections in silver in the near term (real near term), I cannot see how gold and silver can stay down as long as we see enormous risks in the economy and decline in the U.S. dollar.
And for all those who are calling for a sustained U.S. dollar rally this summer, riddle me this: With House Republican Speaker John Boehner already having shot the first cannon in the debt-ceiling debate, how will the market sustain the jitters of a potential U.S. dollar default, as this fight will be taken to the brink by both parties as they did with the budget debate?
How can the dollar continue to rally in the face of a potential default scenario?
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