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Silver: How to Call It and Play It

Posted on 2012-11-05, By A-Best Staff

Silver: How to Call It and Play It

Silver prices have taken investors for a ride as of late, with lows last week emphasized by the Fed’s extension of Operation Twist – in lieu of quantitative easing – and depressing manufacturing data. Markets kicked off this week focused on the upcoming EU summit and overall concerns about global growth. However, despite the negative sentiment and risk-off mentality weighing down global equity markets, silver rose on Monday. Such erratic moves can preoccupy investors with attempts to call the market, which can overshadow their focus on playing it.

At 4:00 p.m. EST on Monday, silver was up $0.83 at $27.49. Following last week’s lows, such a move on a risk-off day could cause investors to wonder whether silver is getting safe haven support, whether it is recovering, or whether expectations of recovery are even realistic without QE.

While gold was up largely on safe haven trading, it is too soon to conclude the same about silver or to presume that the metal is bound for a recovery. For the most part, today’s silver transactions were associated with both short covering and bargain hunting.

Silver investors

Trying to call the market play by play or to classify the motives underlying its movements can be overwhelming.

Futures players appear far less confident about silver than ETF investors. Even when looking at
bargain hunters and metal holders it is difficult to define them because silver supporters cannot be lumped into a single category.

Despite repeated disappointments there are some investors who still speculate that there will be more QE. They are in the game awaiting its announcement and the resulting flow of cash into silver. If there is ever a solid indication that easing is either unlikely or off the table, many of these individuals will likely be shaken out of the market.

Among the white metal’s true loyalists are those who believe that central banks have already provided a bullish foundation for silver. They look at trends in monetary policy with great concern.

The BIS reported that debt purchasing has pushed central bank balance sheets to $18 trillion in assets, about 30 percent of global gross domestic product.

Considering the negative real interest rate environment and the temptation for central banks to “extend and pretend,” Eric McWhinnie, chief commodities analyst for Wall Street Cheat Sheet, advises keeping a safety harness in one’s portfolio in the form of precious metals.

Many silver supporters agree. They believe that this type of action is unsustainable and that there are potential consequences that are widely ignored. They foresee times of extreme currency debasement, erosion of confidence in financial systems, and even collapse of those systems. For them, silver is a means to protect wealth and preserve value.

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