Silver madness

The silver-bug community rejoices over silver’s performance. But do they really understand why the silver price is rising? We look at the bigger picture.

Silver’s remarkable performance is now beginning to be reported in the mainstream business press. As usual, these articles are clueless. Today’s Daily Telegraph noted that silver topped $60 for the first time, attributing it to expectations that the Fed will cut interest rates today, though it did mention tight markets and surging Indian demand as supplemental factors.

Almost no one thinks that the trouble is in the dollar and its cohort of fiat currencies. Not even market participants. Almost all the commentary is wide of the mark. But why is it that silver is on a tear? This article explains the background.

Any technical analyst will recognise that silver appears to be in an unstoppable bull market, and while it looks set to go further given its momentum, they say that the danger of a significant correction is high, at least to $50 where the 55-day moving average resides. Meanwhile, long-term fans of silver with little other than technical analysis to guide them feel vindicated and delighted.

In the investor universe, silver bugs are in a tiny minority. Not even professional investors such as hedge funds have bought into silver’s rerating as the relationship between price and Comex open interest indicates.

Until mid-July, there was some speculative trading, illustrated by the swings in open