How Big Is The Silver Correction?

by Aaron Krowne

founder, ml-implode.com

Amidst a clear pullback from commodities and precious metals, silver has especially been singled out for shellacking the past week. Silver is down almost 20% from its high near $50/oz. It even got 3 margin increases in 5 days from CME (who administers the prevailing futures — or paper — market for silver, upon which the “spot price” is based). There is little love for silver in the past week, especially from the trading-centric.

But long-term precious metals bulls, dollar bears, and those who believe silver has long been shorted to a point way below its fair value, are typically pleased with corrections such as the present period offers. “Buy the dip”, they say (sometimes adding an expletive or two in there). And you should, as long as the underlying conditions and investment thesis have not changed.

With that in mind, I cruised over to a few reliable outlets to see what physical silver would cost me. My mainstay for a quick at-a-glance price of many common physical PMs items, gleaned from one of the biggest, most liquid over-the-counter markets (eBay) is at 24hgold.com. Here is the direct link to the silver price listings.

As a potential buyer (or at least, one who looks for opportunities to urge friends and family to buy, when I cannot) I was sorely disappointed. In the last couple days, the prices for a 1 oz silver Eagle have ranged from not budging (from about $50 before the pullback), briefly down to about $46, and even up to $58! There is nothing remotely close to the $40 that the futures (paper) market price would suggest.

100-oz bars, which I use to get a low-premium read on what the physical investment market price of silver is, are coming in a bit north of $4500.

APMEX (APMEX.com), which is among the very lowest of dealers in terms of premium, is listing 1-oz silver Eagles for a bit over $46 per Eagle, for individuals or small quantities. The problem with APMEX is that it isn’t a fully liquid market — they frequently sell out of the most popular items. In other words, they habitually sell too low, so I consider their price to be a lowball to the “true” free market, market-clearing price.

My conclusion is that this silver correction is a paper-only affair, similar to the liquidity crunch in the fall of 2008, that hammered gold and silver along with everything else. But while silver reached around $9/oz on the COMEX in that pullback, you were hard pressed to find physical silver under $13/oz.

So long-term gold and silver bulls: nothing has changed, and this “correction” is mostly smoke and mirrors. Be right and sit tight, and you are sure to be rewarded. Look at the correction as a good thing, as it provides a breather and flushes out leveraged paper speculators, allowing silver to build a solid base for the next up-leg.

If only we could pick up physical at these prices!