Silver collapses 12% after nearing $50

The flames of volatility turned into a veritable firestorm of price gains and declines on Monday as the new week got underway and Tuesday’s opening action showed no indications that the hectic pace of change was about to abate. Gold and silver continued to cover a large price spectrum as the morning wore on, with the former trying to hang on to the $1,500.00 level while the latter raced across a $2.50+ range that basically extended from $44.60 to $46.30 per ounce. On Monday and during the overnight hours the silver story was much the same; a frenzied spike to very near $50 followed by a near 12% insta-collapse down to the mid $44 area.

Late Monday market analysis revealed a string of five days during which the average Daily Sentiment Indicators remained at 97%. Such extreme levels have not been noted for circa a quarter of a century in the white metal. In the words of Elliott Wave Editor, technician Steven Hochberg, the vertical price rise and an extreme in optimism is potentially “ultimately lethal for those who believe that they can outrun the impending reversal.” Silver has been on a speculative tear since Valentine’s Day and it remains the focus of most financial media and commentary headlines. Hopefully, latecomers to the silver party will not experience the characteristics of a long-gone, other...Valentine’s Day.

Speculative activity in gold and silver gained traction as reflected in the latest CFTC reporting period’s mention of an increase in net length in both metals. Gold’s net length is above the 800 tonne level, whilst the one in silver has exceeded 6,400 tonnes. Spiking gold price tags have begun to pose a buying dilemma even for the traditionally gold-friendly Chinese investor.

Meanwhile, the CME has recently increased margin requirements for silver, but that did not come as much of a surprise to participants. The majority of the gain in speculative long positions last week came from short-covering and was not attributed to fresh buying. Gold’s possible push towards the $1,525-$1,540 price targets could be in jeopardy if silver does undergo a sharp decline and manages to drag the rest of the complex down in sympathy.

Technical support levels in the metals are currently indicated at: $1,493.00/gold, and at $43.55/silver. The action might intensify later in the day as we are on approach for COMEX options expirations. Standard Bank analysts note that “important strikes” are concentrated at $1,500 and at $1,520 in gold and at $40 and $50 in silver respectively. Ergo, the basic requirements of a strong stomach and a stout wallet are essential, while patience and courage are priceless at this juncture.

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