• 8 hours Shadowy Brokers Target Easy TikTok Money In New Scheme
  • 1 day Cannabis Sales Are Soaring In The United States
  • 2 days Biden Will Be A Boon For Solar Stocks
  • 3 days The Shroom Boom Is Here To Stay
  • 6 days The Gold Rally Has Finally Run Out Of Steam
  • 6 days Citibank Analyst Predicts $300k Bitcoin By End Of 2021
  • 9 days Bitcoin Lives Up To Its Safe Haven Status In A Big Way
  • 9 days 14 Million People Will Lose Unemployment Benefits On December 31st
  • 11 days Why 12 Million American Millionaires Isn’t Good News
  • 12 days Big Oil Is Paying The Price For Investing In Renewables
  • 13 days The Banking Industry’s $35 Billion Gravy Train Could Disappear
  • 14 days Did Amazon Just Democratize Prescription Drugs?
  • 16 days The Private Space Race Just Got Very Real
  • 17 days Short Sellers Are Willing Big In This Turbulent Market
  • 18 days SpaceX Gets Go-Ahead To Send Humans Into Space
  • 19 days Saudi Arabia Lost $27 Billion In Oil Crash
  • 20 days China’s Big Tech Takes A Hit As Regulators Crack Down
  • 21 days Black Friday Could Be Retailers’ Only Hope
  • 22 days Why You Should Not Dump Your Stay At Home Stocks Just Yet
  • 23 days The Real Reason Why Uber And Lyft Stocks Have Soared Nearly 50%
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Violence Begets Violence

Violence erupted in the silver market last night in Asian trading. And while the trading volume was thin due to many Asian markets being closed for their respective holidays - the velocity and magnitude of the initial decline was staggering.

Within the first eleven minutes of trade, the market was down over 12%. Who knows where it will be by the time we open tomorrow morning, but suffice to say the silver market is getting downright Sopranoesque at the top.

This should come as no surprise to anyone following a parabolic move. The angle of incidence equals the angle of reflection once you hit exhaustion. It's probably even more accurate to say refraction, because typically the downside is even steeper than the advance.

As a critic of this sector I can reason with greater confidence that the parabolic move in silver is coming to an end. And while there is a possibility that the market will make another run at the previous highs - silver's fate has very likely been sealed. A market that trades with this much volatility (four standard deviations above the average price move after a 60% gain in three months) indicates it is in its death throes of upside momentum.

A month ago in my first piece on why I believed the precious metals sector was a massive bubble waiting to pop (see here), I wrote:

Today, everyone believes the inverse relationship to be true. That the financial system is broken, that the Fed has lost control and that Islamic Jihadists or a Middle Eastern state(s) will bring us to our knees. While there is some truthiness in shades of that - it's more hyperbole than reality.

It was the confluence of the Tech Bubble bursting in 2000, the events of 9/11 and a commodity sector that was overdue for outperformance - that gave birth to this bubble. As with every bubble - it starts with a legitimate thesis for outperformance - and then runs away with emotion. It is only after we reach the dizzying heights of the sun that we realize the danger we so confidently embraced.

That moment seems imminent.

If there was ever a more fitting bookend to the bubble that is silver and gold - we received it tonight.

Osama Bin Laden is dead.

The poster-face of the fear trade has been killed.

Silver Monthly Chart

Certainly the bull market in precious metals was not predicated solely on the War on Terrorism or Osama Bin Laden for that part - that's ridiculous logic. However, every bull market needs a catalyst to prick the runaway momentum that completes the final parabolic move. Once the dust settles, Bin Laden's death will contribute to that psychological sea-change that was already gaining steam inherently with the conclusion of QE2.

It could be the perfect storm the charts were alluding to.

Silver & Gold Performance Daily Chart
Larger Image

1-Year Relative Exuberance Ratio
Larger Image

Monday's trading should shed quite a bit of daylight on whether this latest break in upside momentum is the final straw or whether the market has another chance to turn back towards Friday's highs.

Should the silver ETF stabilize around 44 tomorrow morning and over the next session, there is an opportunity to bounce again back towards 48. In either case, I have a near term downside target for SLV of 36.

For further reading on my rationale for this line of thinking can be found here:


(Positions in ZSL, UUP and TWM)


Back to homepage

Leave a comment

Leave a comment