Tuesday, May 17, 2011

What to do when the silver price goes down

What to do when the silver price goes down? The price of silver is a volatile one. It has recently continued its climb to what appears to be stratospheric heights and then plummet.

Firstly we need to look at why this is so. What is happening to the price of silver? The price of silver is not affected by industrial use despite it being the main use of silver, over 80 percent of all silver is used in industry and the medical field. This use is very stable and not subject to wild fluctuations in use daily or even weekly. Yet the price of silver changes not just daily but on an hourly basis. The balance is used in the manufacture of silver coins, rounds, jewellery and investment. Coins and jewellery are also a long term activity and would not explain such wild variations in the price. So that small amount of investment silver just be affecting the price of silver, but how could it?
The one answer that satisfies all criteria is if the price of silver were being manipulated.

According to Eric Sprott, chief executive officer of Sprott Asset Management LP, which oversees a $1-billion silver fund that was, incidentally, $327 million larger at the beginning of last week,

"the recent plunge in silver prices was a "bear raid" – where some investors band together to drive the price down. Silver dropped $6 late one Sunday and was immediately followed by a margin increase."

However, Sprott doesn't consider the raid will keep prices down for long as the silver market is just too small. He recently stated.

"One of the things we should look at is the trading of silver in the paper markets… the Comex and the SLV. Last week, it averaged 1.2 billion ounces per day. There is only 700 million ounces mined in a year. There is only 33 million ounces of physical silver that is available for delivery by the commercial shorters. If something like 3% of the people that were trading silver in one day demanded physical delivery, there would be no silver on the Comex. The key market is the physical market. I don't think this raid is going to work."

Avery Goodman, on Seeking Alpha, describing what he believes to be massive manipulation of the silver market, and Peter Grandich, in the Grandich Letter, wrote.

"I don’t think (re the silver market manipulation) it's a coincidence that when you look at when silver really started to rise sharply and get into a parabolic stage was on the heels of the testimony that came before the US commodity commission last year by a trader who actually stepped up and made claims and supported claims of manipulation. I don’t think that was coincidence. I do think that we are playing on perhaps the most un-level playing field the investment world has ever seen. The small investors and small-time players like me are at a distinct disadvantage. I know that’s the case because hindsight has shown that the great financial crisis that we endured a few years ago came on the heels of some of the biggest players selling investments on one end and absolutely shorting those same investments on the other end for themselves. None of them have even gone to jail. They have nuclear weapons, and we have pea shooters. Any accusation or claim that silver went up and or down because of not just day-to-day fundamentals but because of people’s abilities to manipulate is, I think, genuine."

Although there is evidence of consistent manipulation of the silver price over the years this only appears to affect the short term price. The long term price has shown, over the past ten years, a consistent rise, hindered perhaps to some degree, but a rise nevertheless which shows no signs of abating.

In view if this and the expectation from many fronts and analysts that the price will continue its upward spiral in answer to the question, what to do when the silver price goes down well the answer seems to buy silver Consistently and continually. The price and value of the silver you hold will balance out and the overall value of ones silver holding will increase regardless of any manipulation applied. Indeed it is an area one can take advantage of. When the price is pushed down. Buy silver. When the price goes back up again. Buy Silver. It may be “pushed down” again at sometime in the future but the inevitability of it is that it is eventually going to go up again.

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