Volatility Subsides: Weekly Silver Recap

Volatility has left the silver market, save for a 5% plunge on Monday that eventually found support at the $14 level. Silver closed $14.22 on Friday, down 4.1% on the week. Gold fared better than the official metal of the Olympic runner-up, losing only a half a percent in closing the week at $934.30 and bumping the Silver:Gold Ratio up from 63.3 last week to close 65.7 this week.

In the big picture, despite silver’s $2 drop from its recent 10 month highs, it still remains up 31.8% on the year, while the ratio has dropped over 18% from 80 on Jan 1 to under 66 currently. The uptrend since Fall 08 lows remains, and the $14 level looks like good support at this point, certainly making sense when you look at this chart below. A definitive violation would be very surprising and worrisome (short term) for silver bulls, but can’t be ruled out.

SILVER 6 MONTHS thru 6/19/09

The metals markets are taking their cue from the dollar these days, as silver’s 10 month high on 6/2/09 was the same day the dollar hit its 9 month lows. Also, silver’s bloody Monday was the same day the dollar had its best day of the week. Right now the dollar has a magnet to the 80 level on the dollar index, closing between 80 & 81 all week.

Govt long bonds have also stabilized, with the 10 yr now yielding 3.79%, exactly where it started the week, while the 30 yr yield dropped 11 basis points to 4.52%. Stop and think about those yields for a bit, on an absolute basis, in light of the current economic situation and historic govt bond yields.

• Continued record issuance of govt debt, roughly 4X greater than just last year.
• Foreign creditors not only publicly stating their concerns about treasury issuance and dollar stability, but also actively pursuing and closing deals to bypass the dollar in international commodity agreements.
• Reduction of treasury purchases by foreigners.
• Yields that are still over 200 basis points lower than the average during the Clinton years, when by comparison the Federal Govt was downright frugal!

Commentary

Govt debt at this point is a massive Ponzi scheme and foreigners are getting wise to it. While borrowing record amounts, creating record deficits, and dominating the American economy, the govt is also enacting programs and policies that guarantee no healthy recovery by which to raise revenues through a larger tax base – the massive borrowing will continue ad infinitum (they hope). The govt has no faith in true free market capitalism; it feels it is the answer to all of our problems, denying the reality of its own culpability. We are not in control of our destiny; debt makes slaves of governments, too.

Other Markets of Note:

Oil – finally closed down for the week, off 3.2% to 69.55, after rallying 17.1% the prior 3 weeks.

S&P 500 – also took a breather after a healthy run, down 2.6% on the week to 921after rallying 6.7% from 887 to 946 the prior 3 weeks.

As the son of a stockbroker, I got into stocks during college, ultimately reading Jack Schwager’s ‘Market Wizards’ book senior year, which really opened my eyes to trading and investing in other asset classes. I worked on the Pacific Stock Exchange for most of the 1990’s as an assistant specialist and eventually a specialist. I developed a very contrarian trading style, searching out closed end funds and micro-cap stocks to trade. Trading for almost 20 years now, it wasn’t until Dec 07 that a friend turned me on to silver, after I queried him about gold’s prospects during the early months of the credit bubble bursting. The next month I made my first purchase of silver bullion, and have followed the silver market closely ever since. I am also a huge sports fan, and contribute to the website www.sportscity.com with a general sports blog (Speedburner on Sports), a tennis blog (Todd’s Tennis Takes), and NBA commentary (NBA Daily Awards).

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