Relief Rally in Silver, Bulls Still Greedy, Call a Buying Opportunity

May 6 (Bloomberg) -- Silver futures fell, heading for the steepest weekly decline since at least 1975, as an increase in margin requirements and slump in commodities from copper to oil prompted investors to sell precious metals. [...]
Not unsurprisingly, silver is rallying today, gaining about 4-5% after a 30% correction. The rally could last a few days.

What is very interesting is that this crash was so quick, that the bulls didn't get enough time to start panicking.

Speculators are still too bullish, still coming with the "Central Banks Are Printing" and "There are silver shortages" rationalizations, so it's not very likely that we have bottomed.

This creates the perfect breeding ground for another major leg down.
(Barron's — 6th of May) — [...] Don’t count commodities out just yet, wrote analysts at Barclays this morning. “In our view, the current sell-off represents a potential buying opportunity across several markets,” they noted.
The report predicts, however, that a correction “will probably not last for very long.”

(Seeking Alpha — 6th of May) — [...] Both gold and silver’s sell-off are healthy and are due to their becoming overbought in the short term (particularly silver); this is once again a paper profit-taking and technical-driven, speculative sell-off as seen in the surge in frenzied dealing and large spike in trading volumes in silver futures in New York.
Some nervous physical silver buyers and more speculative physical buyers have sold today and this week, but those buying for diversification and financial insurance are strong hands and have not sold. Indeed, physical buying and buying the dip continued this week.
Store-of-value, safe-haven bullion buyers should hold their nerve and continue to accumulate and maintain a core holding in gold and silver bullion. In the same way that the sharp falls from over $20/oz to below $10/oz in 2008 are now seen as a wonderful buying opportunity, so this sell-off will be seen as another buying opportunity.

Those who sell on this sell-off and fail to reenter the market or maintain a core holding in gold and silver bullion will likely regret it in the coming months and years.
Savers need to protect themselves from local currency risk and diversifying savings through ownership of bullion continues to be prudent.
(Seeking Alpha — 6th of May) — "Silver is crashing!" You can hear it all over the blogosphere. The market is ridden with fear that the silver bubble has popped. It has not.[...]
Bargain hunters: This is your opportunity. Stocks like First Majestic Silver Corp. (AG), Silver Wheaton Corp. (SLW), iShares Silver Trust ETF SLV, and ProShares Ultra Silver ETF AGQ look cheap here.
The world's richest man, Mr. Carlos Slim, was featured on CNBC yesterday in a segment in which it was disclosed he has been a seller of silver futures for the last few weeks since April.

This is NOT bearish in my opinion. You may think, "Why would the world's richest man sell silver futures if he's not bearish on the metal?". This is not bearish my friends because he is hedging this position for a far bigger trade: Slim owns a Mexican mining company called Minera Frisco. This is a major silver and gold producer that produced 200,000 ounces of gold, and 5.5M ounces of silver last year! In 2011, he plans to quadruple silver production to 19.1M ounce.!

Still think he's bearish on silver? I think not.

This pullback is a gift, and he knows it. In fact, he could be contributing to the decline, on top of the CME's recent margin hikes representing a greater than 30% cost to margin a silver futures position.
Here are the charts and some silver option plays worth considering. I suggest entering the miner shares at current prices, but the options should be added only to augment your position and increase your gains.
Peter Schiff's Blog — Silver's Correction
Considering the remarkable performance that silver has had over the past year, this correction was long overdue. It makes sense that $50 would be a point of resistance, as it was the 1980 high. But none of the fundamentals have changed: the US dollar is still sinking, the emerging markets are still growing, and global interest rates are still negative in real terms. Whether the selloff was motivated by the CME raising margin requirements three times in one week or by some deluded notion that Bin Laden's murder would restore US greatness, there's only one way for an investor to view it: as an opportunity.

Sellers have taken the froth off the market, and now silver is an even better buy. For those who bought at higher prices, it's a good time to average in by buying lower. For those who were regretting not buying at all before silver hit $50, the market is giving you a second chance.
Jim Rogers: In 1987 stocks went down 30 to 40 percent, smart people went in a bought more. If it goes down I hope I’m smart enough to buy move silver. - in CNBC
Jean-Marie Eveillard, Senior Adviser, Portfolio Management for First Eagle Funds on King World News today: We don't worry too much about the silver correction.

In the meantime, Babak over at Trader's Narrative aims at $23 and points out:
The Sprott Physical Silver Trust (PSLV) fell from a premium of 23% to just 11% yesterday. But today, even though we saw another 12% decline, premium actually went up slightly to 12.2%. That doesn’t seem to be the kind of sentiment we’d see at a significant low.
It seems that there are too many silver bulls trying to stop a freight-train by standing in front of it. I can imagine their reasoning: “If silver was a great buy at $48… then it must be an outright steal at $40.. $39… $38″.
I don’t know when or how it will get there but at that last price level [pej: $23], expect to see real pessimism and capitulation from the “fiat” muttering masses. That price point also provides a significant low relative to silver’s 100 moving average. The last time we saw that level of oversold was in October-November 2009.

No comments: