Last night’s momentous events proved once again that world developments come about when they are least expected and that their effects on financial markets can be anything but predictable. Last night also proved that at least as far as silver is concerned, the spills that it occasionally experiences can be as gut-wrenching and pocketbook-draining as the euphoric thrills it provides now and then. Thus, this morning there is a lot of searching for answers and for future-telling among global investors. Good as the commodity party has been since September, there are certain aspects of it that have been built on less than solid foundations. Sunday night’s tremor revealed some cracks that bear watching as we go forward.
The news that former wealthy Saudi businessman-turned-Public-Enemy-No.1, Osama bin Laden had been permanently “neutralized” by U.S. forces would actually have had an easy time fueling precious metals and oil higher as the Taliban’s current leadership wasted no time in warning about upcoming retaliations against American interests. However, as it turns out, the intersection of uncertainty and overheated markets makes for a strange, unpredictable locale in terms of both politics as well as money.
What at first appeared as a misprint or computer malfunction in the market’s price tickers turned out to be a very real and clearly frightening (especially to latecomers to the silver-plated punchbowl), 12% meltdown in the price of silver last night. The white metal lost that huge amount of value in a sensationally swift manner (in just 11 minutes) and did so amid conditions that could only be described as “out-of-control trading.” After having touched a high of $48.22 the precious metal was also seen changing hands in Asia at $42.17 per ounce.
Monday’s trading action in New York opened under continuing selling pressure for all of the metals in the complex. Gold fell $13.40 per ounce to start at $1,552.30 on the bid-side. Friday’s price action was labeled as a “throw-over” in Elliott Wave parlance and was not confirmed by the patterns in silver. A solid close taking place beneath the $1,542.00 level could be thought to indicate that a
significant top (based on wave patterns) might have been put into place in the yellow metal.
For the time being, there was only a momentary, overnight dip on gold, to the $1,539.50 level, but the developments in gold for this week, and indeed, for this quarter –according to our good friend Brad Zigler, the managing editor of HardAssetInvestor.com, bear watching very closely (and even more so for silver). In his in-depth Marketwatch analysis, Brad looks at a quite interesting metric called the Silver Leverage Indicator (SLI) which was devised by Roland Watson (AKA “The Silver Analyst”). Within the context of that measurement, it is thought that precious metals market tops are thought to occur or be predictable when silver’s four-year return exceeds gold’s return by 80% or more. That percentage was as high as 1.53% just recently.