The below update was sent out to subscribers of Money Matters on 26 April 2011
On Monday, the silver market experienced a key intra-day reversal. During Asian trading, the price of silver surged to almost US$50 per ounce (+5% intra-day), however during European trade, selling came in and the metal struggled to stay firm. Thereafter, when the US market opened, the price of silver plunged to below its previous close. In other words, the silver market experienced a classic intra-day reversal, which usually markets the end of a parabolic move.
As you know, we were expecting a serious pullback in the price of silver and it seems as though the medium-term correction is now underway. A dispassionate review of silver’s weekly chart shows the metal’s parabolic rise, which always ends with an equally spectacular reversal. Although the silver bugs will argue with our assessment, we want to make it clear that there is no shortage of physical silver and the world is not running out of the metal. Anybody who says otherwise is only engaging in propaganda and trying to separate you from your money.
At this stage of the game, there is no way of knowing how long silver’s correction will last but when you take into account the fact that less than a year ago, silver was trading at US$17 per ounce, you can be sure that the pullback will not be mild. Accordingly, if you are a trader and/or have significant exposure to physical silver of the related mining stocks, now may be a good time to book profits.
Remember, precious metals are still in a secular bull market but no item goes up in a straight line. Every bull market goes through periodic corrections and whenever any commodity rises in a parabolic fashion, it always undergoes a severe correction. Thus, this is the time to control your emotions and take some money off the table.
Finally, as far as gold is concerned, since it did not zoom up like silver, we expect any correction to be muted. Thus, there is no urgent need to liquidate one's gold related holdings
