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Hope is Fear Gone Bad for Paper Silver Shorts

By Dr. Jeffrey Lewis

The price pattern in silver and gold remains intact. It shows that each time these precious metals are pushed below a key technical moving average, new buyers come into the market.

Most are weak hands, speculators or amateur traders who have fallen in love with the idea of a futures contract, although the original longs have still refused to trade their valuable metal for intrinsically worthless paper dollars.

Furthermore, Open Interest on the Comex silver futures contract rose again on Friday, which is astounding.  This demonstrates that while the professional traders switched to the short side in gold, the silver longs have not yet capitulated. They are taking the shorts head-on.

A massive short covering rally that sends the price of silver and gold rocketing higher could well be lurking just around the corner, as the professional traders cover their gold shorts and the central planners controlling the paper market rush for the exits to cover their silver shorts in a panic.  The hope is that no one notices this increasing risk.

The Fear

In the silver market, fear stems not so much from the big bullion banks — who have the deepest pockets and virtual immunity to prosecution across a broad range of financial niches.

Instead, the fear, or the hope gone bad, is from the new investor who, cloaked in a short term swing trader mentality, wants to pick the bottom or catch the top.

As an example, relatively new silver investors typically quiz market analysts about the 'real’ value of silver, but then they ask questions about where to put in their stop loss orders. Stop levels typically matter little to a person contemplating a long term investment or rather using silver as an inflation hedge or a disaster insurance policy.

No one can know the real value of silver, which is its true purchasing power. Nevertheless, manipulation to keep the price of physical silver artificially low has resulted in a situation where the actual value of silver is much higher than its current price in paper currency terms.

The true market for silver has been shut out for decades, while still appearing to behave according to technical signals — until they fail, of course — and also providing paper profits for the very few who are truly capable of trading these markets.

The Frustrations of Trading Silver

Trading the silver market profitably is nearly impossible because the short term price is actively managed by the big players to the detriment of the smaller speculator.

The price point in the short term actually matters very little, especially given how much room the market has to the upside. Even if you waited to invest until silver bottoms and then starts moving up, your investment would probably be sound.

Unfortunately, most people enter the silver market as traders, and they soon also exit this way — typically disgruntled and murmuring to themselves about conspiracies or excessive volatility.

The Case for Precious Metals Remains Strong

Despite the challenges involved in owning the precious metals like silver and gold, the case for doing so as a long term investment remains intact.  Central bankers worldwide have become the lenders of last resort for nations that have virtually exhausted their borrowing capacities.

Very little has changed since the financial crisis of 2008, when the global financial system stood at the brink of collapse. Furthermore, unsustainable national debt levels continue to increase, even as the capacity to service that debt diminishes.

Basically, silver now looks like an excellent investment to have made ten years ago at a mere $4 per ounce, and it will very likely look like an excellent purchase at today’s prices ten years from now for those investors brave enough to buy and hold it.

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit http://www.silver-coin-investor.com

 

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