This week, the metals’ market fell off a cliff with a small bounce up at Friday’s close. What a difference a week can make.
What happened?
Several factors played a role in the changing metals’ values.
Domestically, the natural disasters of the previous week could have had an impact, though probably minor as the week progressed. The storms that ravaged the south devastating people and property didn’t impact the use of the metals on a large scale.
Early in the week, the Asian market took a couple of days off, which has historically caused the market to decrease significantly. This time, though, the markets dove lower than expected and continued downward.
As another factor, the dollar enjoyed a slight increase in value which can drive the metals’ prices downward.
But, those issues are minor in relation to the real reason silver fell so sharply.
Two weeks ago, a contract to control 5000 ounces of silver cost $11,745. The big investors put their money into controlling contracts not in actual physical silver. With silver’s rapid rise in value, speculators jumped into the silver market by buying contracts.
In their zeal to prevent another 1980 where too few (the Hunt brothers) controlled too much of the silver market, Comex (the Commodities exchange) raised the amount necessary to control 5000 ounces of silver.
Over the last two weeks, Comex raised the rate four different times to where it now takes $21,600 to gain contractual control of 5000 ounces of the silver commodity.
Increasing the rate to control silver contracts by 84% is one way to force the speculators out of the market. The side effect is the exit of the speculators drops the demand for the metal which also drops the price per ounce and impacts everyone’s silver holdings.
But, here’s an interesting anomaly. The actual physical silver held by the commodities exchange is going out the door to be used in industry and business faster than it is being replenished.
That’s a real supply and demand issue rather than the “fake” supply and demand of controlling contracts as an investment strategy. Right now, it’s the “fake” supply and demand that is driving the market prices, but at some point, the physical supply will drive the market.
That’s also why many coin dealers advise to only invest in physical silver not in the paper (electronic) representations of silver which could be worthless if the silver supply is insufficient to back them.
Let’s take a look at the charts for this week:
First, there’s gold:
Silver is next:
Platinum is third:
Palladium is fourth. This chart is included for consistency, but the low value appears to be entered incorrectly – should be $711, not $11.66.
Basically, the metals began the week moving downward and continued down through Thursday. Each metal enjoyed a small upswing between Thursday’s close and Friday’s close.
Let’s look at the low and high values for the past 30 days:
| 30 day high | 30 day low | May 6 Last | Difference between High and Low |
|
| Gold | $1,565.70 | $1,450.50 | $1,495.40 | 7.4% |
| Silver | $48.70 | $34.20 | $35.62 | 29.8% |
| Platinum | $1,873.00 | $1,765.00 | $1,785.00 | 5.8% |
| Palladium | $798.00 | $711.00 | $717.00 | 10.9% |
Silver, of course, continues to have the largest difference between its high and low values.
Now, let’s compare the previous week’s closing values to this week’s close:
| Apr 29 Last | May 6 Last | Percent Change | Dollar Change |
|
| Gold | $1,565.70 | $1,495.40 | -4.5% | -$70.30 |
| Silver | $47.94 | $35.62 | -25.7% | -$12.32 |
| Platinum | $1,873.00 | $1,785.00 | -4.7% | -$88.00 |
| Palladium | $789.00 | $717.00 | -9.1% | -$72.00 |
Platinum encountered the largest dollar difference with silver having the largest percentage difference.
Unfortunately, when market analysts start talking about drops in prices and predict “gloom and doom” fates for the metals, they cause panic in the market, and in a sense, a self-fulfilling prediction. Sure, Comex impacted the market with their contractual rate increases, but the analysts own some of this downward trend as well.
One dealer told a story of a customer who recently bought a bag of silver (that’s $1000 in face and roughly a purchase price of $33,000 when she bought it) as the metal was on the rise. As the prices decreased this week, she brought the bag in to sell it back at a loss of $7000.
No, returning precious metals is not like returning a shirt that doesn’t fit quite right. You can’t “return” a precious metal. It’s an investment which trades based on current market values — whether they are up or down.
In her case, perhaps she needed the money for some reason. Maybe her investment window was short term, and she hit the market wrong. Either way, she lost money.
For those of you who are panicked and thinking of selling, do your research about the market before you make your decision. And don’t just read the negative reports.
A lot of people view this market downturn as a great opportunity to buy — gold and silver, especially.