Silver's Huge Decline
If you've been keeping up with the silver prices, you may have noticed it went down a lot (23%) in the last two days alone. Silver hit a high of $47.015 on May 2nd and today, May 5, it's trading at around $36.35.
If you're wondering why silver has gone down so much so fast, part of the reason was because of the announcement by the Commodity Exchange Inc (Comex) which is owned by the Chicago Mercantile Exchange (CME) to increase the margin requirements for silver futures effective at the end of today (Thursday) and another one due on Monday, May 9, 2011. They only announced the new margin requirement late Wednesday, May 4, 2011.
This made a lot of investors withdraw from the market or sell some of their holdings to meet the new margin requirements. Another reason is the pullout of gold and silver by Hedge Fund manager George Soros.
If someone is selling that much gold and silver, the prices is bound to go down.
Whenever they report a fund manager do something like George Soros selling gold. That means the trade has already been done.
News like these can make you wonder. We all know that we don't live in a perfect world where everybody is equal. But it sounds to me like Soros knew of the new margin requirements before anyone else and he started selling before the announcement. If this was done in stocks, it'll be called insider trading.
This makes it hard for small players to make money in the market and why sometimes it pays to invest with these guys instead.
Also, I find it interesting that they would increase the margin requirements for silver so suddenly. Seems to me like they trying to manipulate the commodities market so people don't get out of the U.S. Dollar. As you may know, a lot of investors have been pouring funds into gold and silver as a hedge against inflation and the devaluation of the U.S. Dollar. Most of the investment in the last few months has been into silver.
By increasing the margin requirements, people will have to sell their silver to meet the requirements and when silver prices drops, people run to cash. Did you notice that the U.S. Dollar suddenly became so strong against other currencies?
The new margin requirements seems to be working. Gold prices went down as well.
There's been speculation that the CME was threatening to increase the margin requirements for gold and oil as well. That's why oil went down so much. This just really sound like pure market manipulation on the part of the U.S. government to control commodity prices.
However, I think the fundamentals for precious metals are still sound. You can't expect a certain asset to go up so much so fast (Silver) and not expect it to come down. Silver went up 25% in a month. That's just too fast and invites a lot of speculators. I'd rather see silver go up slowly like how gold went up slowly over a few years than a big run up from around $26 in January to $47 on May 2.
I hope that silver does go down some more. Because I would be buying more if it does. I would buy silver coins and bullions though instead of ETFs.
Another commodity that went down a lot is oil. Oil is at $100.90 as of this writing, down from $114 just three days ago.
Why would I buy some more? The fundamentals hasn't change. China still needs oil, the US still needs oil, summer is coming and a lot of oil will be used when people drive. It's not like we're finding more oil.
Even if they did find new oil. It takes several years to get the drilling done and bring it to market. Even then, it's not going to be enough to actually oversupply the market.
Read what Jim Rogers has to say about what happened in silver and oil.
Finally, the only abundance in resource we are getting is natural gas. They found a huge natural gas reserve in Louisiana, in the United States. The conservative estimates says that it may hold some 200 trillion cubic feet of natural gas. And this is in the United States! That means, they don't have to fight a war or deal with any other countries for these resources.
200 trillion cubic feet is enough to satisfy 100 years of current U.S. natural gas demand. That means, when this natural gas is in full production, we may see the U.S. become a major exporter of natural gas.
Because of this huge find, I don't think natural gas prices will rise as much anymore in the future. But we may see a change in how the U.S. runs its energy policies. They may shift from coal powered plant to natural gas power plants which is cleaner than coal. Cars can also run on natural gas which we already see in some buses here.
Total, a French oil company also announced it found a huge natural gas reserve in Bolivia. They are calling it a megafield.
These production takes time to build and the world is not going to shift from oil to natural gas immediately. Oil prices will eventually fall, but that may a few more years until the world has shifted to natural gas.
It is the natural cycle of the world. When we run out of a commodity, we always find another one to take its place. In the past, people used whale oil, specifically Sperm Whale Oil to light their lamps and used as candle wax. When the whales started to die off and the world started to run out of whale oil, that's when they started to use oil for fuel.
There was a time in history when people ignored oil coming out of the ground because it was dirty and smelly. Only when the world started to run out of whale oil did they start looking for alternatives and finally ended up using oil.
This is a cycle that will continue and we may in the future find that there is no more oil in the Middle East and see other countries reap huge rewards from natural gas or uranium.
Eventually, the world will shift to solar, wind and hydro for its power needs. But that's a long time from now.
If you're wondering why silver has gone down so much so fast, part of the reason was because of the announcement by the Commodity Exchange Inc (Comex) which is owned by the Chicago Mercantile Exchange (CME) to increase the margin requirements for silver futures effective at the end of today (Thursday) and another one due on Monday, May 9, 2011. They only announced the new margin requirement late Wednesday, May 4, 2011.
This made a lot of investors withdraw from the market or sell some of their holdings to meet the new margin requirements. Another reason is the pullout of gold and silver by Hedge Fund manager George Soros.
If someone is selling that much gold and silver, the prices is bound to go down.
Whenever they report a fund manager do something like George Soros selling gold. That means the trade has already been done.
News like these can make you wonder. We all know that we don't live in a perfect world where everybody is equal. But it sounds to me like Soros knew of the new margin requirements before anyone else and he started selling before the announcement. If this was done in stocks, it'll be called insider trading.
This makes it hard for small players to make money in the market and why sometimes it pays to invest with these guys instead.
Also, I find it interesting that they would increase the margin requirements for silver so suddenly. Seems to me like they trying to manipulate the commodities market so people don't get out of the U.S. Dollar. As you may know, a lot of investors have been pouring funds into gold and silver as a hedge against inflation and the devaluation of the U.S. Dollar. Most of the investment in the last few months has been into silver.
By increasing the margin requirements, people will have to sell their silver to meet the requirements and when silver prices drops, people run to cash. Did you notice that the U.S. Dollar suddenly became so strong against other currencies?
The new margin requirements seems to be working. Gold prices went down as well.
There's been speculation that the CME was threatening to increase the margin requirements for gold and oil as well. That's why oil went down so much. This just really sound like pure market manipulation on the part of the U.S. government to control commodity prices.
However, I think the fundamentals for precious metals are still sound. You can't expect a certain asset to go up so much so fast (Silver) and not expect it to come down. Silver went up 25% in a month. That's just too fast and invites a lot of speculators. I'd rather see silver go up slowly like how gold went up slowly over a few years than a big run up from around $26 in January to $47 on May 2.
I hope that silver does go down some more. Because I would be buying more if it does. I would buy silver coins and bullions though instead of ETFs.
Another commodity that went down a lot is oil. Oil is at $100.90 as of this writing, down from $114 just three days ago.
Why would I buy some more? The fundamentals hasn't change. China still needs oil, the US still needs oil, summer is coming and a lot of oil will be used when people drive. It's not like we're finding more oil.
Even if they did find new oil. It takes several years to get the drilling done and bring it to market. Even then, it's not going to be enough to actually oversupply the market.
Read what Jim Rogers has to say about what happened in silver and oil.
Finally, the only abundance in resource we are getting is natural gas. They found a huge natural gas reserve in Louisiana, in the United States. The conservative estimates says that it may hold some 200 trillion cubic feet of natural gas. And this is in the United States! That means, they don't have to fight a war or deal with any other countries for these resources.
200 trillion cubic feet is enough to satisfy 100 years of current U.S. natural gas demand. That means, when this natural gas is in full production, we may see the U.S. become a major exporter of natural gas.
Because of this huge find, I don't think natural gas prices will rise as much anymore in the future. But we may see a change in how the U.S. runs its energy policies. They may shift from coal powered plant to natural gas power plants which is cleaner than coal. Cars can also run on natural gas which we already see in some buses here.
Total, a French oil company also announced it found a huge natural gas reserve in Bolivia. They are calling it a megafield.
These production takes time to build and the world is not going to shift from oil to natural gas immediately. Oil prices will eventually fall, but that may a few more years until the world has shifted to natural gas.
It is the natural cycle of the world. When we run out of a commodity, we always find another one to take its place. In the past, people used whale oil, specifically Sperm Whale Oil to light their lamps and used as candle wax. When the whales started to die off and the world started to run out of whale oil, that's when they started to use oil for fuel.
There was a time in history when people ignored oil coming out of the ground because it was dirty and smelly. Only when the world started to run out of whale oil did they start looking for alternatives and finally ended up using oil.
This is a cycle that will continue and we may in the future find that there is no more oil in the Middle East and see other countries reap huge rewards from natural gas or uranium.
Eventually, the world will shift to solar, wind and hydro for its power needs. But that's a long time from now.
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