By Phil Stramel
In recent years, the price of silver has been more volatile than that of gold. That trend is expected to continue. Still, given that both gold and silver are enjoying multi-year bull markets that most expect to continue for another decade, one would expect it to be relatively easy for a savvy silver investor to score some outstanding short-term profits in these volatile conditions. However, it is more than the volatility that makes silver one of the most risky short-term investments there is today.
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In recent years, the price of silver has been more volatile than that of gold. That trend is expected to continue. Still, given that both gold and silver are enjoying multi-year bull markets that most expect to continue for another decade, one would expect it to be relatively easy for a savvy silver investor to score some outstanding short-term profits in these volatile conditions. However, it is more than the volatility that makes silver one of the most risky short-term investments there is today.
Although gold is less volatile, short-term investing in gold has not been that easy either. In 2011 and the first half of 2012 there have been sharp, unexplained pullbacks in the price of gold. When I say unexplained, I don't mean there are no explanations offered. Those who make a living writing and talking about the markets have to write or say something about every notable development, especially a big price surge or pullback. If one reads all the comments, one will find contradictory reasons for the significant pullbacks.
Analysts that do not need to have something to say when the camera turns to them, or that do not need to make a press time, have noticed a patterns in the big price drops of gold. Large quantities of gold have been sold between two and three A.M New York time the day before the price of gold gaps down on the New York exchange. Neither of the major gold exchanges in London and New York is open for trading at two to three A.M New York time. To secure the best price for a large quantity of gold, one would sell on either the London or New York exchange, and one would sell a portion every hour or two throughout the day, or over the course of two or three days. Obviously, the seller/s does not want to secure the best price.
In the last year, most days when the price of gold gaps down three to four percent at the New York open, an early morning sale has taken place. When the price of gold gaps down at the open, the price of silver usually gaps down even more, on a percentage basis. Investors and speculators sell, sell, sell when the New York exchange opens. And price moves even lower. Early A.M. business network pundits give a kneejerk explanation of why. A couple sometimes admit they do not understand the price move. Discovery of this early morning sales has resulted in a conspiracy theory-a theory that some central bank or banks are conspiring to keep the price of gold in check for the sake of the value of currency.
If one wanted to manipulate the price of gold lower, this is the way to do it. To do so when the major exchanges are open would require a much larger sale (supply) to cause a significant price drop, because there are many more buyers (demand). Price manipulation cannot be traded, unless one knows in advance that it will occur. I'm not that well connected. How about you? Those I know who discovered the large early morning gold sales do not know who is making the sale.
If the price of gold can be manipulated, how much more so can the price of silver be manipulated? The silver market is estimated to be less than two percent the size of the gold market. You may be aware that the price of silver has been held to historically low levels for over two decades. Lawsuits were filed against two banks in early 2011. But that doesn't mean the manipulation has stopped. Even if it has, when the price of gold gaps lower on the open, silver always does too.
It takes time for the price of gold and silver to improve after these incidents. Long-term investors see this as a buying opportunity. Eventually, the fundamental factors driving the precious metals bull market will win out. Time-sensitive silver investing instruments, such as options or futures, are very risky. Leveraged ETFs are also risky. As long as these unexplained early AM gold sales continue, short-term investing in gold and silver will continue to be very risky.
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