DID THE SILVER BUBBLE JUST GO “POP”?
I am not quite sure what’s going on with silver prices in early Sunday trade, but prices are absolutely cratering with the July contract down 12.5% as I type. The price is volatile and I am not able to find a reasonable explanation for the decline so far. And there might not be one….This is the sort of action you get in a market that looks bubbly. As I’ve said on many occasions, bubbles are highly unstable market environments. And yes, silver is in a bubble. The question silver longs now have to ask themselves – did the silver just go “pop”?
* Mr. Roche is short silver via puts.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
Follow Me:
64 Comments
this might be part of the answer:
http://www.zerohedge.com/article/its-getting-plain-silly-mf-global-hikes-silver-margin-175-cme-or-over-10-contract
Thanks Walden. I can’t imagine that would be the cause…but it’s the only news I see….
Wow cullen. just wow. what’s it feel like to be one of the great bubble spotters?
I don’t predict bubbles. I just calculate the riskiness of markets. Sometimes the timing is lucky….we’ll see here. This hasn’t fully played out yet. It could just be a glitch somewhere although the price appears to be stable at the lows which tells me it’s a legit move.
http://www.kitco.com/market/ look towards bottom if a 10%+ drops qualifies for a BP, then it popped. But who cares about labels? a 10% nose-dive is a nice drop regrdless of labels. R U short via SLV puts?
Not seeing any news, currencies are stable.
The margin hike applies to longs and shorts, so if thats what this is, then the speculative levered money was all on the long side (duh?)
But this move is nasty….
weeeeeeeeeeeeee
one thing is guaranteed – there will be no shortage of silver bugs screaming about manipulation tomorrow morning…
Thanks to, Kid Dynamite, who exposed the silver conspiracy freaks on the Seek Alpha’s biggest ever thread with over 500 posts!
Boy oh boy, Blueice, was sure proud of Kid Dynamite’s parries, including the “distinguish” Jason Rommel Hommel and his escort, Teddy Butler…
Gold isn’t down much (in comparison). I have a silver short on too and hoping this drop sticks till the open on Monday. A reason to use futures instead of etfs.
as per financial astrology; gold/silver to correct on may 4th…bin up since april 27th….now the time to short sugar, oil, entertainment, etc…as the world crashes. costofwar.com…that elephant in the room no one will speak too…continuous war doctrine must be paid for.
This economy VERY much like germany in ’37-44, eating their own people, continuous war.
doan come running to me when you eat yr own toes…
I would say to hold your nose and buy the dip like every other dip in the last two years (but maybe silver will go on sale some more). Has the Bernanke Put changed? It might be temporarily on hold with the end of QE, but this bubble seems to have the same ingredients to continue growing (fundamentals, momentum, psychology).
Big Banks who are short on Silver are playing games….this down is on very thin trading .. wait for Monday evening where Silver closes when big hedge funds buy big time and ask for delivery …
Can we short your use name? lol
The explanation… “The CME increased it’s margin requirements twice last week and that is causing speculative, over-leveraged longs to get out quick smart.”
i was worried there until i saw this post. next stop $50.
The drop came at the same time China announced this
CHINA: PMI Manufacturing (APR Official) comes in lower at 52.9, surveyed 53.9, previous 53.4
HSBC released their PMI on Friday. This was not a surprise….
silver in not in a bubble, the dollar is in a death spiral, that flash was the cartel letting everyone one know they have dominion, at least for that moment, sit back and watch the show….POSX
Cullen,
You say silver is a bubble, fine. The fact that you don’t talk much about gold makes me wonder what you think of it. What I see, and you will agree with this, is huge amounts of speculation over silver giving its price incredible volatility. But what is the fundamental difference between gold and silver? I am assuming gold does not go up as fast as silver because there is less speculation over it, I would assume that it is more driven by supply and demand movements, correct?
JP
I’ve been and am bullish about gold….Have been for a long time….
What are the main reasons that made you be bullish for so long?
Make your profits on the puts and call it a good move!
I’ll take the silver bubble over the government paper bubble any day of the week.
There is no such thing as an alchemist, but a printer, they’re a dime a dozen…
Obsession without causation can be a dangerous my dear friend.
wtf are you talking about?
I’ll be a little surprised if, over the next few weeks, silver tanks and gold just sits there.
“prices are absolutely cratering with the July contract down 12.5% as I type. The price is volatile and I am not able to find a reasonable explanation for the decline so far. And there might not be one….This is the sort of action you get in a market that looks bubbly.”
http://www.scribd.com/doc/53755275/Log-Periodic-Oscillation-Analysis-Forecasts-the-Burst-of-the-%E2%80%9CGold-Bubble%E2%80%9D-in-April-%E2%80%93-June-2011
http://imperialeconomics.blogspot.com/2010/10/chinas-gdp-per-capita-global-gdp-and.html
http://imperialeconomics.blogspot.com/2010/10/top-for-price-of-gold.html (Mr. T says, “I pity the fool who does not buy gold!”)
http://www.bbc.co.uk/news/business-13252688
http://www.economist.com/node/18560195
http://www.economist.com/blogs/freeexchange/2011/04/chinas_economy
http://www.economist.com/blogs/freeexchange/2011/04/chinas_economy_0
Read the above links carefully.
PMs have exhibited the classic textbook faster-than-exponential bubble trajectory coincident with China’s similar hyperbolic money supply and credit growth rate. All bubbles extend beyond reason and empirical justification.
Friends, global real per capita growth is over, along with 8-10% demand for oil and commodities, and China is the largest credit and fixed investment bubble as a share of GDP EVER in world history.
All bubbles crash back to the point at which the hyperbolic/asymptotic growth trajectory started. China’s per capita GDP is set to contract at least 30% hereafter at some point this decade. China’s long-term per capita rate of 4.4% will converge with the global per capita GDP ex Asia of ~2% today (a 75% decline in the trend rate), with peak global oil production, peak oil exports, and the ongoing decline in net energy reducing global per capita GDP still further.
The China (and Asia) Crash will be unprecedented in scale in history. The Fed cannot bail the US banks, economy, gov’t, AND China and the rest of the world.
The Sinophiles expecting the Middle Kingdom to take over the world will be utterly shocked when China crashes and the rate at which the country’s money supply, production, assets, wages, exports, and consumption declines, as well as how reactionary the Chinese gov’t becomes in response to the myriad crises that ensue, including the increasing likelihood of a military takeover of the gov’t and economy in the years ahead.
The scale of riots and social unrest will be unprecedented throughout China, and the Chinese professional middle-class will waste no time in calling for the People’s Liberation Army (PLA) to be mobilized to crush the 1 billion Chinese rioting in desperation throughout the countryside and coastal urban centers.
And the PLA generals are eager to break off trade and diplomatic relations with Anglo-American empire and to reestablish Confucian-Maoist discipline and control over the economy and gov’t.
China = SELL. Prepare for the Middle Kingdom to turn inward for a generation.
Nemesis, another one of your well written post..
You are correct that the ChiComms will have a pullback but it will be in a much more
orderly fashion, than the route you provided…
The PLA will not undermine the leadership, as it owes its modernization and growing
strength to the party’s economic stewardship…
Cullen, I’ve been visiting various blogs for a better grasp of current economic scenario. NO WHERE on the blogosphere could I find such an unbiased information. Please accept my gratitude for being there for us
.
Osama bin laden is dead maybe thats why silver is taking a hit
Or “The Donald” provided his tax returns…
Think so too. Someone knew the news before the public. Bastards.
But this is irrational. Won’t last.
10:30pm CDT and spot silver is down 10.38%….
This is long over due, with silver shorts arriving daily at the local rendering plant….
The last meaningful retracement occurred on July 12, 2008 to November 21, 2008, when Ag
declined from $19.30 to $9.17 poz…
bin laden’s dead and the dollars rallying, as if that really changes anything.
Well done Cullen, great trade.
I think all the congratulatory praise for Mr. Roche here is a little premature. Silver is indicated down 6% in futures trade, hardly indicative of a “pop” to the bubble, if one even exists.
What I’d like to know is this – why would an asset class that was in a ~25 secualr bear market stop short of eclipsing its all-time nominal high of $50 when it has every fundamental and technical tail-wind in the world at its back?
I also want to know why silver will not go on to achieve 2x its nominal all-time high like gold has done.
Of course, there are no rational explanations for why silver will fail to check either of these two boxes in the coming weeks/months, as it surely will…
I am out of the trade as of today. It was a +1.5% net portfolio mover so no need to breakout the pom-poms.
I have no idea where this bubble goes. I have been pretty clear about that. No one can predict a bubble. It’s best just to steer clear of this market….
Nice trade man. You netted 150 bps for the fund/account on a single, small silver put position? If so, that ain’t bad at all…
Yeah, that was the nice thing about execution via options. The risk/reward was high given how bullish the silver market has been. Didn’t expect an outlier event like today, but sometimes you get really lucky.
in a volatile market as silver is, n after a big runup, this is a correction…..hey it as flat for almost a year before the runup…it just over shot gold.
i’d like to see it get to the $34 support level.
but i do not have enough faith in that to short it.
silver has been in backwardation….bin laden comes up dead n silver loses 12% 2 hours later….hmmmmm….
more likely this is DOW cyclical bull top.
just my opinion.
ya, good trade cullen, thats if you made the trade friday. lol.
30% in 10 days. It wasn’t a huge position for me, but certainly was still a very good trade.
Jesse is an interesting source for the metal action: http://jessescrossroadscafe.blogspot.com/
Silver will bounce back. Until the RSI for silver dips below 50 (today it’s at 77) there is nothing to worry about. With the US dollar in a free fall commodities will begin to rise again by the end of the week.
You are clearly right, Krut….Trading range for Ag today is $48 to $42, with the metal recovering its 12.5% loss to a mere 3%, this morning…
Articles such as these are a waste of time because they are based on emotion and not fact. The best investing tool out there is the RSI. The RSI basically gives you the percentage that a stock / ETF is up based on a 14 day moving average. Anything above 50 or 50% is good. Anything below 50 or 50% is bad.
Silver RSI 77 = http://stockcharts.com/h-sc/ui?s=$silver Very hot!
AGQ RSI 70 = http://stockcharts.com/h-sc/ui?s=agq
DBS RSI 71 = http://stockcharts.com/h-sc/ui?s=dbs
US dollar RSI 25 = http://stockcharts.com/h-sc/ui?s=$USD The US $ is in a free fall with no end in sight. This is why oil,
silver, gold and food will continue to go up.
http://stockcharts.com/h-sc/ui?s=$spx&p=D&b=5&g=0&id=0 When the RSI for the S&P drops below 50 the rally is over.
Might want to recalculate those RSI’s big boy. And btw, if you think trading is as simple as watching RSI’s go above or below the 50 line, well, LOL, as they say, a fool and his money are soon parted.
I am afraid you are right, Wayne….
There is not a single indicator that works well all the time…
Don’t look now, but it’s retraced most of its losses. JPM ain’t off the hook yet.
Sold my puts. 10 day 30% move is enough for me. Plus, I have to admit I don’t enjoy being involved in this trade in any way shape or form….
cullen, grow a pair :>) still long my silver shorts (although i think your taking profits is never wrong)
Seriously! I need to man up.
Unfortunately, I’ve played this bubble shorting game and it has caused a lot of heart ache for me. I’ve made some incredible bubble calls and been forced to undergo weeks of brutal pain….Lesson learned. I don’t jump into these pools too aggressively.
But good luck to you. I hope it works out for the best.
understood. i’ll have a looksee for awhile, maybe it’ll be ok