Live Silver Prices

Silver dropped under the 30 dollar mark this morning. Depending on when you start counting, we’re seeing a price drop in the 8% range — and it’s only just now starting to bounce back. Whether the drop will last or not is anyone’s guess, but we can certainly analyze the market to see exactly what’s happening and might happen in the near future.

As I mentioned in Europe could Crash Silver Even More, Europe is has a huge influence on the global markets. As they attempt to solve their immediate problem, many of their solutions are long term and it seems they might be allowing a default to happen in Italy, Spain or Greece.

Because Europe is literally going off a cliff at this very moment economically, with no seatbelt or airbag in sight, the dollar is looking extremely inviting to many investors. It might have some long term problems, but when you are driving off a cliff anything close that is financially more stable and liquid is a savior.

A strong dollar usually forces the precious metals market down.

There isn’t any end in sight for Europe problems at the moment, so the dollar’s strength is putting downward pressure on the precious metal markets. If this continues, the turn for silver will likely continue.

2. A Global Credit crunch and Depression from Credit Default

A global credit crunch could continue to be likely if any of the European countries default. First, the defaulting amount essentially is credit that disappears from the books. Second, the sovereign bonds are insured. This means the insurer (banks) will have to liquidate their cash in order to help cover the default as much as they can. This is cash that the banks don’t have, and will either limit other cash loans (crunching available credit) or even compete for cash loans (as banks seek a way to come up with the cash).

When you toss fractional reserve lending into the mix, the scope of this problem might be close to the 2008 collapse, and may push the global economy into a deeper credit crunch and depression.

But what does all this mean for silver?

Plenty. Right now, banks and individual are dumping their precious metals as fast as they can to get into a more liquid asset to pay off their debts and get out of the European market. Some banks are even lending their gold and silver to raise dollars.

You must remember, in much of Europe businesses and banks are having a “fire sale” where they are selling their most profitable assets for anything they can get.

In addition, silver and gold don’t typically gain value during a credit crunch and an economic depression (when there is a strong currency) because they are not liquid. The dollar is feeling strong right now in comparison to the euro.

3. Graph Analysis: The Bump-and-Run-Reversal

An interesting graph analysis is predicting a silver drop to the mid to low twenties before its next growth trend. The graph analysis is called “the bump and run reversal” pattern and is usually applied to speculator markets that have large and fast growth. Silver is one of those markets.

According to Thomas Bulkowski, the Bump-and-Run Reversal Top pattern consists of three main phases:

1. A lead-in phase in which a lead-in trend line connecting the lows has a slope angle of about 30 degrees. Prices move in an orderly manner and the range of price oscillation defines the lead-in height between the lead-in trend line and the warning line which is parallel to the lead-in trend line. 

   This lead in happened for silver in the last half of 2010, until mid February of 2011.

2. A bump phase where, after prices cross above the warning line, excessive speculation kicks in and the bump phase starts with fast rising prices following a sharp trend line slope with 45 degrees or more until prices reach a bump height with at least twice the lead-in height. Once the second parallel line gets crossed over, it serves as a sell line.  

   This phase started in mid February of 2011, when silver jumped up to nearly 50 an ounce by late April. It crossed the sell line close to the 46 dollar mark.

3. A run phase in which prices break support from the lead-in trend line in a downhill run.

   This occurred as we entered May. Silver has been floating between its two target lines for a few months now, but this morning dropped below its second target line. This means the third target line of this analysis (silver as low as $24.00) can be expected if nothing else drastic happens.

   While we are not saying this analysis is perfect, it is giving us visual evidence of why this drop might be happening and where it might end.

   (An article on the above can be found here: http://www.marketoracle.co.uk/Article32099.html)

The European financial disaster might be just beginning. If the current trend keeps up, we will may see a long term credit crunch and global depression as a result. This would strengthen the dollar for the short term and drive the precious metals down even further as businesses and investors need liquid assets. Graph analysis shows us that we may even have a floor near the 24 dollar mark for silver before we start our next big climb. That’s a big “maybe”, of course.

That being said, the second half of my Europe Could Crash Silver Even More article gives a detailed look into possible upcoming physical silver shortages. If industry demand jumps on this silver sale silver prices could surge.