Live Silver Prices

I recently predicted a floor for silver prices around the $24.00 mark. We haven’t seen that floor and $26.00 seems to be staying relatively stable at the moment. While we still haven’t seen an actual default in Europe yet, today we are going to take a look at Greece’s latest threat, and at the two factors that are possibly reversing the silver price drop. These two counter influences may influence a significant bull move soon if Greece (or another country) doesn’t default.

1. Greece Defaulting Would Impact the Globe

First, Greece dropped an expected bombshell recently by threatening to leave the EU and the Euro completely. If they revert back to their own currency, they could “print” as much of it as they wanted to take care of their sovereign debt and attempt to revitalize their local economy. Of course – the currency would be nearly meaningless in value on the international level. This means what we talked about in our article “Europe Could Crash Silver Prices Even More “ is continuing to come to pass and if Greece does leave the Euro, the debt assets held throughout the globe would crash in value.

Greece is agreeing to stay in the EU if they are given 130 Billion Euro bailout with no strings attached. Both the EU and IMF know the Greek economic system is a black hole – at the same time – if they don’t give this money global markets will suffer. Much like the 2008 housing bubble collapse.

We need to keep a close eye on this. If Greece pulls out, it will be a 2-3 month process before the credit crunch starts hitting the global markets. If they are bailed out, the bailout will stem the tide for the short term (I would guess at least through this year) – but only in Greece. Spain and Italy, while not having as much civil unrest and anarchy as Greece, are economically in nearly the exact same place. If Greece demands money and gets it, whats going to stop these two countries from doing the same?

• The Impact of Greece on Silver

The Euro is in a tough spot. A default  (by Greece, Spain or Italy) will mean a credit crunch globally and short term downward pressure on precious metals. A bailout means a continued devaluing of the Euro with no exit in sight, and while it will solve the short term problem, it only pushes a larger problem down the road 12 months or so. This will likely cause massive volatility in all markets – including silver prices. (Which means even if silver makes massive gains, it could easily crash back to today’s price within a few months.)

2. The Forgotten Investors Return

Several articles back I talked about a group of silver investors who were at an all time low in the silver market. They are starting to surge back into the market and the ones that are in the market are holding onto their silver fiercely. The first physical impact of this surge is:

• Silver Eagles

A huge paradigm shift has been taking place about paper silver (and how spot price is determined and manipulated) and physical silver over the last several years. As more investors invest in physical silver for security, it is demonstrated by massive market shifts. An example of that is the history of U.S. silver eagles.

The end of December and into the first day of January started with a surge in demand for Eagles, with a 88% increase in demand compared to the start of 2011. In fact, with a declining silver production here in the U.S., just the U.S. silver eagle demand this year is projected to outpace the entire U.S. domestic production of silver.

This means silver eagle use to account for less than 20% of total domestic production of silver less than 9 years ago – and are now nearly 15% over domestic production. This is no small thing, and continues to show that silver is one of the best long term investments you can get into.

• Silver Backwardation

The other impact of investors current mindset is the backwardation of silver futures. At the moment, buying a silver future is actually cheaper than having the physical silver itself. With many commodities, this happens when there is a shortage of supply.

That isn’t the case here (at least we don’t think so). Silver isn’t like wheat and isn’t perishable. More likely, this just means that even though many silver investors can dump their current physical silver in return for a cheaper future – they are not willing to grab up the free money.

This shows that the current investors in the market have very little trust at the moment. As the future prices continue to drop and the backwardation increases, this will put a significant amount of bull pressure on the price of silver because historically this type of backwardation is resolved by steep silver price jumps.

3. Precious Metals and The Dollar Unhinging?

A final important factor: recent charts are showing that both precious metals and the dollar are rising in value. This might be a quick quirk, but its also might demonstrate something that we haven’t seen much of historically. Because we are dealing with a sovereign debt crisis on a global level, it would seem that signs are showing that a section of investors, instead of escaping to the strongest currency, are actually escaping to precious metals.

Normally, as the dollar gains in value, precious metals lose value and vice-versa. If there are two groups of investors – one group fleeing to the dollar (especially for liquidity) and another fleeing to precious metals – we might see a separation of influence that we haven’t seen in years.

Obviously, the flee to the dollar holds more initial influence because its liquid, many banks need to sell off their precious metals for cash (and other factors that I’ve mentioned) – but once that rush of initial big money hits, we might be seeing a longer, more reliable trend of things to come.

In short – the possibility that a global credit crunch doesn’t put downward pressure on precious metals as much as I had previously thought, but actually helps solidify it as a safe retreat for some investors that are not interested in liquidity. It will take a lot of cash pouring into precious metals to unhinge the currency influence on the price of precious metals, but it might be happening before our eyes.

We will be watching the relationship of the price of precious metals and the U.S. currency’s value to further test our theory over the upcoming weeks.