The Curse of the Silver Trade By Jeff Clark Tuesday, April 12, 2011 Everyone wants to be popular. We all want the respect of our peers. We crave the adoration of friends and family. It's a natural human condition to desire popularity. But in the financial markets, popularity is a curse. It's the popular trades that blow up. They suck us in and get us thinking how cool it is to be in this trade or that trade. Then, at the precise point where everyone loves the trade, the market blows it up. The market hates popularity. Indeed, if we were in high school, the market would be the one shooting spit balls at the homecoming queen. And right now, that queen is silver. It seems everyone loves silver. And why not? It's had a spectacular run. It's trading at its highest level in 31 years. It's up over 100% since last September. And all sorts of market pundits believe we could see $50 per ounce over the next few months. Who wouldn't want to hang out with the most popular kid on the street? But before you go and offer up all your lunch money to become part of the "in" crowd, take a look at this chart Source: This is a long-term chart of the price of silver plotted against its 200-day moving average (the blue line). The 200-day moving average (DMA) serves as a magnet for the price of silver. Any time the price drifts too far above or below the line, the magnet pulls it back in. The red lines on the chart highlight times when silver was trading 50% above or below its 200-DMA. When the chart is too far above the line, silver is popular. On the previous two occurrences in early 2006 and early 2008 the market dealt with that popularity by crushing silver 33% and 60%, respectively. In October 2008, silver was trading about 50% below its 200-DMA. The metal was horribly unpopular. It was the nerdy, pimply teenager nobody wanted to hang out with. Of course, that turned out to be the best time to buy it. Today, silver is trading more than 50% above its 200-DMA. It is, once again, a tremendously popular trade. Everybody's talking about it, and everybody wants a piece of it. Be careful. While it's nice to hang out with the popular kids, it's best to stay out of the way when the spit balls start flying. At the very least, silver needs some time to consolidate its recent gains. The best case is the metal could hang out here for a while and give the 200-DMA a chance to rise up closer to the current price. The worst case is silver could be headed for a nasty correction. Either way, if you're thinking about buying silver, you'll likely get a safer entry level a few months from now. Best regards and good trading, Jeff Clark
no thanks just a contrarians view mate, if or when it goes to the 200dma we shall just load up big time
yeah.. this guy is buying for sure. Dick. convince everyone to sell so the price drops for him (or JPM) to buy more. pfft. get effed.
I see the chart and I agree, intuitively it says "stay away", but if you are just accumulating silver long term then I don't see a problem at all. Just don't go all-in just now, tippy-toe in over a long period. I mean, look at early 08, sure it dipped (another great buying opportunity), then its doubled in 2 years.
I am just starting now and I have a fixed weekly budget. The price will simply determine how much i can get for that fixed amount of money it makes you buy more in the dips and less in the peaks. it's the smart way to invest long term.
very sensible, its just wise to suspect the unexpected thats the general gist of my post, I'd hate for new collectors to get too carried away
Ditto. I am more inclined to dislike price climbs, even though they increase the value of my holding. It just makes it harder for me to get more. I'm on a fixed budget too.
there's shortages with dealers now at $40/oz, why does everyone suddenly think there's gonna be this incredibly buying opportunity if there's a huge correction. I wasn't stacking in 08 but from what old timers on here have said, you couldn't buy any silver anywhere when it hit it's bottom in october, there was no physical available until the price had regained to 12 or 14 dollars. Intraday traders using leveraged accounts can get wiped out by margin calls if there's a huge dip but if you're long on physical it doesn't really matter too much. Say you bought at the peak of 08 - $22, then GFC happened and the price dipped to $8 briefly, then back to $14 or so.. you've lost roughly a third of your value in fiat. Then you sit on it another 2 years and you've almost doubled your money. Still much better return than leaving money in the bank and paying tax on the interest every year. If you're only buying silver with fiat that you can afford to go long on it still doesn't matter much, from my point of view.
I personally don't see us going below $30-32 unless there is another 08 style crash. Looking at the chart apart from 08, Silver has been trading above its 200day moving average for that whole period of the chart shows. It's only recently its starting to break out. I do think we could be in for a correction though, maybe to $32 at worse....because that chart is parabolic and not healthy. I think it would be wise to stop buying, save a chunk of cash and buy big if we do get a correction that we "should" have. Because if you buy at these prices, the POS would have to to get to over $80 just to double your money.
The more I see charts the more I realise that there are a lot more influences than the single dimension of buy and sell. Old traders talk about 'the market' as an entity - and there are more influences than the charts can show. Charts explain what happened, not what WILL happen.
this is the point i was trying to make - there's 6-8 week delays on delivery on various products with most dealers now at $40, where is all this extra silver going to come from if it dips and suddenly demand doubles?
So true! I remember one of the most important things learned during uni was.... HISTORICAL PERFORMANCE IS NOT AN INDICATOR OF FUTURE PERFORMANCE. Of course they weren't talking about PMs pricing but I believe it still holds
I'd like to think I could get in quick enough to buy up the first batch right after the dip OK OK you got me there, I cant answer your question.
Wouldn't you still be able to order and lock in the spot rate at that time (even if you have to wait 12 weeks!)? Not too sure since I'm new to all this
i'm just referring to comments people have made on here about 2008 - nobody was selling and by the time they were, spot had risen at least $4. Even if price drops due to a market crash, basic principles of supply and demand kick in. Massive increase in demand, constant or reduced supply. It's something to consider.
Yeah, totally!!... Ive just spent the last hour n a half reading analysts reports on the net regarding the 200MDA going right back to 2004 and all the spikes and dips. I must admit, charts would usually make my eyes glaze over but this was interesting stuff, putting it in context with where we are right now - rather para-bolic-ing.. I have a new respect... Bullionbaron has a good blog about this too...
I often wonder if Kiyosabi and other big investors made something of silver early reccomending to the masses and have pulled out with 3-400% gains? People know what plastic money is really worth and I think this guy is talking about paper silver, he never once mentions physical. Did Perth Mint ever make paper tigers?
Good thread. Im still new and quite dumb. I honestly almost bought alot when it was $41+ because I thought it was off to the races and then kaboom, it died. Im glad I didnt but on the flipside, as a new stacker, I am in for the long haul. Im all about some mike maloney and I really think that the almighty dollar is going to collapse this decade. I just hope I can have a max stack by then. Cash is trash.
