Multiple readers have asked if silver, at this level, is a buy. Others are asking when the selling will stop. After deluding the masses that there is only one direction, silver has free fallen almost 30% in four brutal consecutive trading days. I tried my best to warn my readers that this market was in a precarious situation.
At this point, obviously silver is extremely oversold in the short term. And as I mentioned earlier this week, retail traders have reacted to the silver decline. So a bounce higher as short sellers cover to take profit is to be expected.
While silver’s decline this week is impressive and I’m sure has left many new investors with a new profound appreciation for the awesome power of the markets to nuke equity in their accounts, the long term view hasn’t really changed. On many long term trendlines, silver’s uptrend is still intact. And I’m not seeing many real evidences that would provide for a lasting floor at these price levels.
The Sprott Physical Silver Trust (PSLV) fell from a premium of 23% to just 11% yesterday. But today, even though we saw another 12% decline, premium actually went up slightly to 12.2%. That doesn’t seem to be the kind of sentiment we’d see at a significant low.
Here’s an updated chart that I shared with you a few days ago:
It seems that there are too many silver bulls trying to stop a freight-train by standing in front of it. I can imagine their reasoning: “If silver was a great buy at $48… then it must be an outright steal at $40.. $39… $38”.
Silver has already broken the third and steepest uptrend to the downside. If it falls below $34, it will break the second steepest uptrend to the downside. And below $23, the third uptrend line.
I don’t know when or how it will get there but at that last price level, expect to see real pessimism and capitulation from the “fiat” muttering masses. That price point also provides a significant low relative to silver’s 100 moving average. The last time we saw that level of oversold was in October-November 2008.