-- Posted 8 May, 2011 | | Discuss This Article - Comments:

Last week is another for the history books for silver bugs with a record one third price correction in a week. It still falls short of the 52 per cent plunge of the 2008 financial crisis. Silver is notoriously volatile.

However, the silver price is still more than double what it was last summer. Judged by that yardstick it is still way out front in terms of investment performance for the past 12 months. Gold has only managed half of that surge.

Buying opportunity?

Does that make silver an instant buy at $35? It certainly has the potential to bounce higher. But normally after such a big sell-off the spirit of speculators is broken, and they do not leap back in even if they have the cash left.

Besides the rumbling of the avalanche in the commodities space last week is most likely a prelude to a wider sell-off in financial markets. The bulls managed to ramp the stock market a little higher on better than expected unemployment data yesterday, albeit the unemployment rate actually rose to nine per cent.

For now the market is interpreting lower commodity prices as a benefit for business, and not as a sign that the world economy is slowing down again. How long before the obvious truth is reflected in lower stock market prices?

Oil prices in particular got pushed up by the flow of money into the economy from the QE2 program. That is now close to an end, and hey presto oil prices are on the way back down. And let us not forget that QE2 is what pushed the stock market up too.

Speculative spike

Silver got caught up in a speculative frenzy over the past couple of weeks, as this precious metal does from time to time. The long term chart of silver is full of dramatic ups and downs but the bull market for precious metals looks far from broken.

Gold has been far more resilient, only dropping below $1,500. Speculators had simply driven silver too high, too soon and the Comex margin changes brought the market back to earth with a bump.

The ArabianMoney newsletter this month explores how best to profit from silver but prophetically warned investors to do this after a summer correction and not before it. That prediction came right and we still stand by our advice on how to best to invest in silver for maximum gain (sign-up here).