We are going to have a discussion about "Silver's Hard Fall".

Silver's Hard Fall

They say that the bigger they are, the harder they fall and silver has been on a large price move as of late. Capturing what some analysts may have felt was more than its share of the rise in commodity prices, silver managed to turn back against Aprilís gains, and more. What was it that made silver climb so fast and then fall so hard? More importantly, is this the end of the road for silver, and gold for that matter?

For some traders, there isnít a straightforward answer when asked why silver climbed much as it did, and towards the end, so quickly. There were also some signs of potential weakness once silver approached $50 an ounce. Since the dramatic drop, I have seen the word parabolic applied to silverís ascendency coupled with assertions that when compared to other historic rises in the precious metal, we shouldíve known better.

The problem with that assumption is two-fold. The first part is the idea that the catalyst for the climb was part fundamental, part euphoria. Yes, traders knew that some of the larger banks and investment houses had short positions but other important entities (namely central banks) have become net buyers of precious metals. This shift has come after years of assertions that gold and silver and the like are wasted assets since you park wealth in them to try to preserve it from erosion. There is normally no cash flow in metals holdings. Gold and silver donít pay out heaps of interest payments like other bank assets, so the old argument was that the bank should work on acquiring things that keep money working and growing. Now they acknowledge the value in keeping gold (and other metals) as part of reserves to hedge against certain conditions like inflation. That means buying assets which serve as protection from currency devaluation like the one seen in the form of stimulus for the US economy which involved printing money. Enter the central bank as buyer.

Other fundamentals included increased individual investor interest, namely in growing markets like India and China. A lot of this fundamental strength focuses on gold rather than silver, but....

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