The 2011 Silver Bubble Crashes 30% in 5 Days
Silver was the first commodity to crack five trading days ago and is now down more than 27 percent since its high last Friday April 29, 2011 — including a 10 percent drop today (May 5, 2011) alone. The “Silver Panic” forced traders to sell other hard assets to raise cash, with the selling spreading to oil and copper over the course of the last two days.
A cascading “Crash in Commodities” beginning with silver a week ago spread to oil and copper as exchanges took steps to rein in speculation, economic data pointed to a global sell-off and big name investors took profits.
With Silver prices diving for 5th day, the biggest loss since 1980, it also had its biggest one-day loss –over $4.00 per ounce.
Silver plunged more than 10 percent on Thursday, its biggest one-day drop in dollar terms since the Hunt Brothers price squeeze, dragging gold over 3 percent lower as panic selling snowballed across the commodities sector.
Silver has now lost 30 percent this week, well above the conventional criteria of 20 percent for a bear market, since it surged to a record high near $50 an ounce last Thursday.
Speculators in the silver futures market were forced to liquidate positions after the CME Group (Stock Symbol: CME) raised margins five times in under two weeks, an 84 percent rise in trading costs that has helped provoke a nearly unprecedented sell-off. The moves helped push silver down from within $1 of its highest price ever. Selling intensified this week after the Wall Street Journal reported that big investors like George Soros were taking profits in the metal. Yesterday, it was revealed that Carlos Slim, the richest person in the world, had begun to sell the metal.
Other factors also weighed on the market, including signals that the European Central Bank was unlikely to raise interest rates next month, which triggered the biggest fall in the Euro versus the Dollar since November.
“It’s going to be a long time before silver can find a bottom to turn higher again,” said Dennis Gartman, publisher of the Gartman Letter. “When you have this kind of damage, it will take several weeks or maybe several months for people to be taken out, and for confidence to be rebuilt,” said Gartman. “It’s not the end of the commodities cycle, not even close.”
“This current sell-off is not commodity specific. It’s risk reduction across the market due to sluggish U.S. economic news such as the PMI and initial jobless claims,” said Hakan Kaya, commodities portfolio manager at Neuberger Berman, which manages more than $3 billion in commodities assets. “This is just a temporary leveraging process, not the end of the bull cycle,” Kaya said.
“Was silver a bubble? I think to a large extent it was. It’s notoriously volatile. The fundamentals of silver are simply not as good as gold’s,” said Stephen Briggs, analyst at BNP Paribas.
Tags: Bear Market, Carlos Slim, CME, CME Group, Commodities Cycle, Commodities Portfolio, Crash in Commodities, Dollar, Euro, European Central Bank, George Soros, Hunt Brothers, Neuberger Berman, Sell-Off, Silver Bubble, Silver Panic, Silver Plunge