Sunday night and gold and silver are crashing

I don't know what it will look like in the morning, but gold and silver are following their massive Friday sell-offs with more massive selling on Sunday evening.

Gold is down about $58 from Friday's close as I write this (almost 4%), to $1443. It closed Thursday around $1560.  So down about 7.5% in less than two trading days.

Silver is down $1.65 from Friday's to $24.65.  (6.3%) It closed Thursday around $27.60. So down almost 11% in less than two trading days.

By any normal metric, these metals have crashed. If these were the stock market, they would rank among the sharpest 2-day crashes in history. Not counting the crash of 1929, I think only 1987 would be bigger than silver's crash, though I'm not 100% sure.

Here's one interesting story. The summary: Near-legendary silver investor Eric Sprott has been selling large quantities of his own silver trust, and he says that he's using some of the money " to buy shares in silver mining companies, which he believes will outperform the metal itself on the next rally."

One thing which I think is very interesting in the market is that while oil is also going down, this sort of selling would normally accompany a big rise in the USD and a big sell-off in stocks, but that's not happening. (There's been a very slight rise in the USD over the past day or two and slight selling in the stock market.)

What this says to me is that the selling is about two things: First, fundamental issues: fear of a marginal global slowdown, but mostly a slowdown in China. And fear that Cyprus, and then other European weaklings might need to sell gold reserves.

Second, and this is really what is happening today, there are massive margin calls in silver and gold and anticipation that the public is getting washed out of the SLV and GLD ETFs, causing massive selling pressure in the spot and futures markets. These redemptions cause further margin calls among the investors with the weak hands, and it snowballs until the public is out and/or those who are short jump in and cover. But the weak public is much bigger and the short pros. Furthermore, there are fast-money traders who simply follow momentum, and will be selling just because it seems like the path of least resistance.

One reason I think this second issue is the key to current trading is that base metals, which followed gold and silver down pretty closely in percentage terms on Friday are down much less (but still down) on Sunday night, with lead and zinc each down less than 1%, and copper just over 1%. The public is not in base metals, so are not being panicked and margin-called out of those metals.

For those (like me) who have any investment exposure to precious metals, the past few months have been very bad, with the past few days being a true disaster. I wonder how people like Glenn Beck, who advertise aggressively for gold-selling firms on their radio shows, will feel as they read these tea leaves. I'm sure Mr. Beck's money is where his mouth is, and I'm not suggesting that he's hawking something he doesn't believe in. I'm simply saying that when you hear ads for any financial asset all over TV and radio, it's only a matter of time until that asset crashes. The most surprising thing about the metals is that they didn't crash sooner.


All that said, I imagine we're close to a bottom in these things, especially silver. But catching a falling commodity is at least as dangerous as catching a falling knife.

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