October 2011: The Month in Silver

Fed Chairman Ben Bernanke.

October has historically been a dark month for the financial markets, but not necessarily for precious metals. This October began on a Saturday, so the first day on which the markets were open was October 3. In traditional form, the broad-market S&P 500 index fell 2.8%, the blue-chip Dow Jones Industrial Average fell 2.4%, and the tech-heavy Nasdaq composite fell 3.3%. This was a brutal start to the fourth quarter of the fiscal year, especially following the worst quarter since 2008. Silver closed September at $30.45, gaining 2% to finish at $31.05. Gold was up 2.1% to $1,655. Obviously, this signaled a move out of more speculative investments and into safer vehicles.

Tuesday, however, saw stocks bounce back in a major way. Federal Reserve Chairman Ben Bernanke said he thought the U.S. “economic recovery” was “close to faltering” – as if there ever was a recovery – and that the Fed stood poised to further intervene in the economy. It wasn’t surprising that this sent stocks higher: the S&P 500 had successive intraday gains of 2.2% (Tuesday), 1.8% (Wednesday), and 1.8% (Thursday). The Dow was up by 1.4%, 1.2%, and 1.7%. The Nasdaq gained 3%, 2.3%, and 1.9%. Meanwhile, silver fell from $31.05 to $30.60, and then further to $28.69 – its lowest close in October – before rocketing to $31.80 on Thursday.

What exactly was happening here? Well, when the Fed made it clear that further intervention was in the cards, this told inflationary stock traders that happy times would soon be here again – suckers. The smart money knew that this bump would be temporary, and sought to get in while the getting was good. While the Fed’s interventions into the economy have never been anything but ultimately destructive, their inflationary impact does goose the nominal price of paper assets, just like it causes the prices of milk and gasoline to rise, so Bernanke’s comments could be seen as “bullish.” However, by Thursday, the smart money began buying up silver and gold as a hedge against this inflation. The best time to lay down some money on precious metals was Wednesday, when silver was down 6.2%. The very next day it gained 10.4%! Note that much of this was predictable based on a keen eye on the stock market.

Friday, October 7 saw stocks pull back a bit in choppy trading. The Dow fared best at -0.2%, while the Nasdaq trailed at -1.1% for the day. This type of trading is typically bullish for precious metals, as stock traders moving out of techs and into blue chips signals risk aversion. Silver continued to climb, closing at $31.98, while gold hit its highest close since Monday, at $1,652. For the week, stocks were up across the board, but so were silver and gold. The S&P gained 2.1%, the Dow 1.7%, and the Nasdaq 2.6%. Silver was up 5% for the week, outpacing all three major indices, while gold was up 2%.

Week Two

Member of Slovak Parliament during the vote on the Euro Zone rescue fund.

Stocks exploded on Monday, October 10, with all three major indices gaining at least 3%. Silver and gold were both up too, with silver closing at $32.23 (+0.7%) and gold at $1,661 (+0.5%). Stock traders liked what they saw coming out of Europe, as France and Germany vowed to put together a Euro Zone financial package, and that gave the euro strength. However, precious-metals traders obviously weren’t convinced, and neither was Slovakia, who threatened to thwart the Euro Zone relief plan on Tuesday. The S&P 500 gained 0.1%, while the Dow lost 0.1%; silver and gold were both up, but only by small amounts.

Stocks resumed their rally on Wednesday, with all three major indices gaining between 0.8% and 1%. Silver and gold were both up, too, with silver gaining 4.8% to $32.89, and gold closing at $1,682. On Thursday, silver fell to $31.97, while gold sunk to $1,656. Stocks were mostly down. This, after the Fed said there were “significant downside risks to economic growth.” Normally when the Fed issues such a statement, it’s bullish for precious metals, as it is expected that this means the Fed will intervene and cause more inflation. That was not the case this time, though.

Friday saw stocks rally to close the week. The S&P was up 1.7%, the Dow 1.4%, and the Nasdaq 1.8%. For the week, the S&P was up an impressive 6%, the Dow 4.9%, and the Nasdaq a tremendous 4.9%. Silver pulled back to $31.82, and finished down 0.5% for the week. Gold was up, though, closing at $1,678, up 1.6% for the week.

Week Three

After posting big gains the previous week, stocks pulled back in a big way on Monday, October 17, as the S&P fell 1.9%, the Dow fell 2.1%, and the Nasdaq lost 2%. Banking giant Wells Fargo posted horrible earnings and saw its shares fall by 8%. Defensive stocks did all right, and gold and silver were both up. Gold closed at $1,682, up a scant $4 per ounce, while silver jumped to $32.30, up 1.5% from its previous close.

French President Nicolas Sarkozy.

Tuesday, October 18 was the day when Moody’s threatened to downgrade France’s credit rating, causing the yields on French bonds to soar. Stocks were up, with the S&P gaining 2%, and the Dow and Nas each gaining 1.6%; while silver and gold both tanked. Silver closed at $31 even, down 4% — ouch. Gold was down 3% to $1,631. What was the logic behind this? There was none. The French credit downgrade should have sent stocks lower and precious metals higher, but it didn’t. Thus, a savvy silver trader would have seen this as a buying opportunity.

Sure enough, silver was up in a rather big way on Wednesday, closing at $31.97, up 3.1% for the day. But it closed at $30.79 on Thursday, and then $30.80 on Friday, down 3.2% for the week. Gold jumped to $1,652 on Wednesday, but then fell to $1,620 on Thursday. On Friday, October 21, gold closed at $1,642.50, down 2.1% for the week. Meanwhile, stocks were mixed for the week, with the S&P and Dow up 1.9% and 2.3%, respectively, and the Nasdaq lost 1.5%.

Week Four

Silver outperformed gold and stocks this week.

The big news of the week was the Euro Zone bailout, which turned out to be very bullish for stocks. The S&P 500 and Nasdaq each gained 3.8%, while the Dow wasn’t too far behind at +3.6%. However, a good deal of these gains were inflationary, as is revealed by the concurrent surges in silver and gold. After finishing the previous week at $30.80, silver had successive closing prices of $31.70, $32, $33.30, $33.55, and $35.42, gaining an even 15% for the week! Gold rose to $1,741 per ounce, up nearly $100 per ounce, or 6% for the week. Both silver and gold – especially silver – smashed the gains made by stocks for the week.

The month ended on a Monday, with silver and gold both down a bit for the day, closing at $34.24 and $1,722, respectively. For the month, silver gained 12.4%, while gold was up 6.3%. Meanwhile, the S&P 500 was up 10.7%, the Dow was up 9.5%, and the Nasdaq was up 11%. Silver was the best investment for the month.

November has already opened up to chaos. Stocks were down huge on Tuesday, November 2, following big losses on the final day of October. The government of Greece is in chaos as the Euro Zone debt deal is once again in doubt. Headlines have been negative across the board. Despite, or perhaps because of all this, silver continues to look good. Regulators may try to thwart silver’s rise, but it is inevitable. Time will tell.