One look at the intermediate term chart for Silver is all it takes to realize that the metal has distinctly fallen out of favor with the hedge fund community.
Oddly enough, the hedgies made a big push into silver in early June of this year so much so that they managed to build the largest net long position that they have had in nearly 4 years.
The large Swap Dealers were more than happy to sell to them however with the result that once the "inflation is coming" sentiment ran out of steam, the hedge funds had no one left to sell to when they had to bail out.
Look at the collapse in those net long positions of the hedge funds and compare that to the above price chart in the second week of July of this year. Out they went and as they did, down went the price of silver. As said many times here - large speculators drive markets.
Don't worry however because we are assured from various precious metal dealer commercials that a certain billionaire fund manager has predicted that silver prices "go north of $50 this year because China and India are trying to corner the silver market".
All I can say to that is it is one tall order! With 4 four months left in the year, inflation expectations had better change in one big hurry! Again, it is so tragic that people will run out and spend their hard-earned money and precious investment capital on investments touted by those talking their book instead of doing some hard-nosed, objective analysis of the markets.
When one looks at the various commodity sector indices ( I am currently using the Goldman Sachs Commodity Index) they are hard-pressed to find the least bit of inflation in tangibles. With the Dollar beginning to surge higher, and with the entire commodity complex under selling pressure, making the case for sharply higher silver prices is a fool's errand at the moment.
Can things change in that regards? Sure they can! The one thing about markets is that they are always changing. For the time being however, one must respect the charts and right now the charts are saying that the notion of $50 silver before 2014 comes to an end is a quaint fairy tale, without some sort of stupendous event occurring. Such claims may work to sell silver to the naïve and unsuspecting while enriching those whose main source of income is derived from ties to the metal, but they do nothing but discredit such carnival barkers in the eyes of objective observers.
I do not have the words to properly describe the disdain I feel when hearing these ridiculous commercials or when reading articles advocating heavy investment into the grey metal. The same people have been singing from the same song book for nearly 3 1/2 years now and have been utterly and completely wrong. One would think that shame and embarrassment would be enough to silence them but no, it goes on and on and on, hardly skipping a beat.
Here's the prognosis from the chart and let's leave it at that for now:
The metal is making a series of lower highs on the weekly chart while continuing to find buyers between $18.50 and $18.00. So far that support is intact. If one is inclined to own physical silver, it would make sense to look for opportunities to acquire the metal if it revisits those levels again. However, be prepared to sit on those holdings for some time without much in the way of overhead gains UNLESS the metal can burst through the $24 level and stay there at the end of a trading week. That would be the first sign that things might be changing in regards to silver sentiment.
Keep in mind that markets can often sit for long periods of time in trading ranges, moving back and forth, or up and down and essentially going nowhere as they mark time. Silver could be carving out a range along those lines or the metal could fall through its lower support level and actually begin another leg lower. I honestly do not know what it will do in the future - guess what? Neither does anyone else. They can talk confidently about it but the simple truth is that unless they can foresee conditions across a broad variety of inputs a year out from now ( or a month or two years or whatever), they are just guessing, no matter how dogmatic that they might be about it.
Watch the charts instead. They are your friend and will let you know what the metal wants to do. Ignore the carnival barkers, the hucksters, the flim-flam artists with the extravagant headlines meant to regale you and think for yourself. Trading/investment is hard and demanding work - it requires a tremendous dedication to your craft and endless hours researching, comparing, back-testing, analyzing, etc. to be successful. Ignore the impulse to rush out and throw your money into some investment because someone with some sort of reputation is touting it at the moment. Do your own homework and then trust your own judgment.
So what if you make a mistake! Learn from it and if the chart tells you that the trade was not a good one at the moment, get out of it and try another asset class or another time. The market is not going to disappear. It will be there tomorrow giving you another opportunity to be successful but only if you learn from mistakes and learn to ignore the carnival barkers. The truth is that few ( if any ) of them are going to be there to take care of your family or loved ones for you. If you fail, what harm have you done to them? But you will have harmed yourself or your investment goals if you blindly follow these people. No one cares more about your investment goals and your personal success than YOU! Remember that!
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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