THE DEEPER DIVE: Silver's Slippery Slope amid Golden Showers
From China's silver hoarding to the president's dollar busting and crypto creations, to overbought markets and corrupt banks, many contending explanations vie for Friday's crash in precious metals.
We just experienced the most astronomical gains in silver and gold I can remember. We all knew, if we are honest with ourselves, that it all looked too good to be true. It looked overbought or driven by some kind of market rigging. It ended with a sudden phenomenal bust. One of Goldman’s most august gold-trading veterans described Friday’s sudden volatility in the gold market as “almost unprecedented.” He believes the massive sell-off was exacerbated by high-frequency traders.
It had to happen—the PM sector was so incredibly overbought that a heavy correction was inevitable. We saw this coming which was why a warning to lighten up on silver stocks was issued on Tuesday. Even so, the drop this morning is of stunning magnitude, with gold down a collosal $367 at the time of writing and silver down a massive $18. (Clive Maund)
It looks like a mania’s blow-off top:
On silver’s 1-year chart we can see that it had run way ahead of its parabolic uptrend to becoming insanely overbought. This is a very useful chart for it enables us to see that it could take about a 30% haircut without breaching its parabolic uptrend. This chart also gives us a target for the correction which is the parabolic uptrend itself, currently at about $65 and rising with the severity of the drop this morning indiicating a higher probability that it will get there, albeit that by the time it does it will be at a higher level, perhaps at about $70 - $75.
Says another longtime gold speculator and advocate, Adam Hamilton:
Gold has soared into a popular speculative mania! Frenzied momentum-chasing buying fueled by truly-astonishing herd greed has catapulted gold into an extreme danger zone. Its ludicrous ascent pace in January launched gold to stratospheric nearly-half-century extremes of overboughtness. Unfortunately market history proves similar irrational-exuberance episodes are followed by violent symmetrical plunges.
In Hamilton’s view, also, the gold run’s spectacular close on Friday was the predictable finish of a mania, and he is a longtime gold advocate.
Since beginning to study markets and trade way back in high-school, I’ve been a gold enthusiast. During the past 26 years which is half my life, I’ve been blessed to pursue my passions professionally full-time. Those include deeply researching market history, trading based on that, and writing financial newsletters about it. I’ve always advocated every investor have some material gold portfolio allocation, at least 5% to 10%….
My whole professional life has been spent studying markets from a contrarian bent with an emphasis on gold. So I certainly don’t say lightly that gold is in a dangerous popular speculative mania. I sure wish this wasn’t the case, as the reckonings after similar extremes historically are brutal. But unfortunately the tale of the tape is crystal-clear. I’ve never seen anything like this in my professional lifetime, it is frightening.
I mean, talk about a blow-off top:
Month-to-date in January alone as of the Wednesday data cutoff for this essay, gold has soared 24.9%! And that’s essentially from record highs, not a deep secular low like a stock-panic bottoming. Annualizing that ascent, gold is skyrocketing at a ludicrous 346% pace! Nothing can ever justify such blistering gains in a massive global asset.
The last time gold was so extreme was all the way back in early 1980, a notorious bubble with brutal consequences. (Read the rest of Adam Hamilton’s article for broader chart history of such euphoric runs.)
Still, there is SO much more to Friday’s metallic crash than just the above, starting with the reason this huge bull run happened in the first place and then going to signs of behind-the-scenes activity/rigging by banks, governments and a world leader. All meriting a Deeper Dive …
