Are Silver Prices Collapsing?

Silver Price Sees Biggest Drop in Three Decades

By Greg McCoach
Friday, May 13th, 2011

The price of silver has really taken a haircut over the past several days.

Silver prices have fallen some 27% since the beginning of the month, and is now leading commodities to the downside.

The sell-off has been dramatic, to say the least. Gold has been hit as well, but not anywhere near as badly as silver has...

Word on the street is that several large hedge funds have been liquidating commodity positions across the board over the past few weeks.

The Wall Street Journal reported last Tuesday:

George Soros's big hedge fund, a firm operated by high-profile investor John Burbank and some other leading firms have been selling gold and silver, according to people close to the matter, after furiously accumulating precious metals for much of the past two years.

I suspect Soros was holding more silver than gold, considering its price volatility...

Last week, silver prices suffered their worst one-day drop in dollar terms in three decades. And with such a stir in the market, the iShares Silver Trust (NYSE: SLV) was one of the most actively traded investments on the U.S. market on several days last week.

This extreme volatility is setting us up for the ever-increasing moves to the upside in precious metals — and in commodities in general.

And this is really a short-term pullback and buying opportunity.

I expect precious metal prices to settle down in the next few days and begin to form a new base. From there, we'll launch to the next set of new highs in gold and silver.

Expect for this to occur. Plan your buys and sells accordingly as we head into the next rally.

The big boys like Soros will continue to sell into the short-term rallies with their paper profits, just as they have this past week or so. But the rallies will continue to higher and higher levels.

We should just start factoring this type of market behavior into our thinking from here on out. It's going to get extremely volatile, which will push our markets into parabolic levels. I suspect money flow to pour back in at some point.

But the question now becomes How long does the exodus last, and how long will the big boys who have left the trade sit on the sidelines?

Jim Sinclair said the other day, “The drop at this time will in retrospect be seen as the foundation for gold trading not at $1,650, but rather at $5,000 an ounce.”

Central banks around the world have become net buyers of gold after two decades of heavy selling pressure. There is not a week that goes by anymore without news of major physical buying of gold or silver by "this country" or "that group".

These are the signs that gold is once again considered the ultimate form of money.

The physical silver market is still extremely tight despite the heavy selling on the paper side, which has severely impacted our market in the short term. But I don’t think this will last long...

Gold and silver are not in a bubble; the U.S. dollar and United States bonds are in a bubble!

For now, precious metal prices have taken it on the chin. But the fight is far from over...

In the end, it will be gold and silver as the last men standing.

So watch carefully as things once again go our way. I don’t think we will have to wait too long.

Good Investing,

Greg McCoach
Analyst, Wealth Daily
Investment Director, Mining Speculator

(http://www.wealthdaily.com/articles/are-silver-prices-collapsing/3083)