Silver Market Manipulation

| December 8, 2010 | 0 Comments

Silver investors are giddy with excitement…

It seems each new day comes with new highs for the shiny metal. Investors are pushing prices higher as they jump on the silver bandwagon.

Silver mining stocks, silver ETFs, silver coins… it doesn’t matter, they’re all getting bid up to the moon right now.

The rise in silver is nothing new.  It’s been surging for months now.  In fact, silver prices are up over 60% from when I mentioned a buying opportunity in August.

Keen investors are making some serious dough right now in silver… maybe you are too.

If you are, it’s important to keep your head about you…

Especially when you’re dealing with a volatile metal like silver.  Prices can turn on a dime with any hint of negative news.  Those hefty gains can be erased in a heartbeat.

After all, nothing goes straight up forever.  Even something with exceptionally strong fundamentals like silver will see corrections and falling prices.

What could turn silver to the downside in coming weeks?

A Chinese interest rate hike or another increase in margin rates for silver traders would do it.  The last time similar news came out, silver immediately sold off.

So don’t be surprised to see silver prices turn south for a bit.

But don’t let any short-term weakness scare you…

You have to be able to hold through corrections and consolidations.

Why?

It’s very tempting to take all your silver “chips” off the table right now.  By closing your silver trade, you’ll no doubt rack up some nice profits.  And there’s definitely nothing wrong with taking profits.

But closing your entire position is a big mistake…

Even though silver has seen phenomenal gains in recent months, the party may be far from over.

Let me explain…

We’ve been talking about the rising industrial silver demand as well as investor demand for months now.  Most silver investors are already keenly aware of these bullish fundamentals.

But here’s some interesting “news” you may not be aware of…

There’s a rumor some large institutions are in a large “synthetic” short position in silver futures.

Of course, gold and silver bugs are all over the news.  They say the short position is a form of manipulation.  By shorting the relatively small silver market with large positions, these institutions are suppressing the price.

They also assert the Commodities Futures Trading Commission (CFTC) is investigating the issue.  If there truly was a manipulative position, then it would have to be unwound.

If the large short position was closed, it could send silver much higher… in a hurry.

How big could the pop for silver be?

Many metal investors use the gold to silver ratio.  In a nutshell, the ratio is a basic way to value gold and silver.  The current gold to silver ratio is around 47 to 1.  For every ounce of gold, you can buy 47 ounces of silver.

   For years, precious metals “experts” have said the ratio is skewed in the favor of gold.  Either gold is way overvalued or silver is incredibly undervalued.

Silver proponents say the ratio should be closer to 20 to 1.  In this case, if gold prices were to simply stay at $1,400 an ounce, silver prices may surge to $70 an ounce… over 100% higher than current prices.

What’s even more interesting is this…

If there is manipulation going on in the silver market and the large short positions are forced to be unwound, silver prices could see a very rapid surge.

It could literally happen in a matter of days.

Now I’m not taking any sides here…

It’s very tough to verify any of these rumors.  The CFTC does mention on their website of an ongoing investigation.  But the results of the investigation are of course unknown.

Here’s the bottom line…

Silver’s had a heck of a rally.  So if you want to take some profits in your silver trades, go ahead and do so.

But whatever you do, don’t close your entire position.

Regardless of manipulation theories, the fundamentals are still incredibly bullish.  There may be some corrections in silver in coming months.  But I would use any sell-off as an opportunity to add to a long position in silver or silver stocks.

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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