The truth behind the silver market

As we approach the end of 2011, the Silver spot price has admittedly endured a tougher road than we would have expected. And let’s be honest — what investment firm on Earth has pounded the table on silver harder than we have?

After the orchestrated silver sell-off in May 2011, silver promptly rose back to US$40/oz where it consolidated nicely, only to drop back below US$30 within a two-week span in late September.

The September sell-off was partly due to the market’s disappointment over Bernanke’s Operation Twist, which sounded interesting but didn’t involve any real money printing. Like the May sell-off before it, however, it was also exacerbated by a seemingly needless 21% margin rate hike by the CME on Sept. 23, followed by a 20% margin hike by the Shanghai GoldExchange — the CME’s counterpart in China, three days later.

The paper markets still dictate the spot market for physical gold and silver. When we talk about the “paper market,” we’re referring to any paper contract that claims to have an underlying link to the price of gold or silver, and we’re referring to contracts that are almost always levered.

It’s highly questionable today whether the paper market has any true link to the physical market for gold and silver, and the futures market is the most obvious and influential “paper market” offender.

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Tags: price of silver, Silver, silver analysis, silver futures, silver futures prices, silver news, silver price, silver price 2012, silver price forecast, silver prices, silver spot, spot silver

Posted by Silver Guru on Jan 27 2012. Filed under Silver Analysis. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry