The parabolic move in silver is making a lot of veteran traders nervous that an already notoriously volatile market could get even more unstable as the gray metal races toward $50 an ounce.
While no one is calling a “top” to the market, sharp swings, like Monday’s $4 an ounce move in the May silver futures on the Comex division of the New York Mercantile Exchange, are not for the faint of heart.
May Comex silver settled at $47.149 an ounce, having reached as high as $49.82 and as low as $45.6450 on extraordinarily heavy volume. According to futures traders, volume in May silver was about 199,000 contracts whereas gold volume was 109,000 contracts. ItÂ’s a rare event when silver volume outpaces gold.
Since the beginning of this year, front-month silver futures prices have gained about 62%, outpacing nearly every other commodity market. In April alone prices have risen about 32%.
Gains like that make veteran traders nervous as healthy markets don’t go up in a straight line, and that’s what silver’s done. Many analysts are calling the move in silver “parabolic” and concerned about how steep and swift a correction could be.
ThatÂ’s not to say the overall fundamental picture has changed. The concerns over fiat currency and hopes of industrial growth continue to underpin the market. However, because silver has risen so far, so fast without a pause several analysts are discouraging stepping into the market without having a long-term motivation to do so.
“If you’re looking to put some savings into gold and silver, don’t worry about the price. If you’re doing it to speculate where the price will be next month, I wouldn’t do it,” said Adrian Day, chairman and chief executive officer of Adrian Day Asset Management.
Several futures traders said for now they are steering any inexperienced clients away from silver because of the immense volatility and even some veteran traders said they are not willing to make any bearish bets directly in silver because of the volatility. ...
For the more fearless trader, Person said seasonally silver prices have fallen been mid-May and late June. According to the Commodity Traders Almanac, a book he co-authored, out of the past 37 years, if a trader has sold silver on May 13 and held that position to June 24, it has worked 24 times, or a 64.9% success rate.
While volatility sometimes gets a bad rap, Person pointed out the activity in silver is desirable to a high stakes traders. “Well, it’s a high stakes market and high stake players like it. With a $4 move you could make $20,000 on a one lot. If you’re right, you can have a very good month,” he said.
Person said to keep an eye on silver for possible signs of a top in this parabolic market. That can happen when a market reaches a new high, pulls back, then goes to test the high for a second time.
It goes there, consolidates and you see a pause, the market chops around and that’s when people lose money. They buy the second test,” he said.
In a parabolic market, prices often will return to where they were before the rally took off, Day said. But he doesn’t see silver falling all the way back to $15 area because there is strong underlying support, which wasn’t seen in the dot-com era, as an example of a parabolic market. “My rule of thumb is a 50% retracement. I would look to buy silver at $35 for the really anxious investor. But I might not buy it for clients until $25 or $30,” he said.
OMG Dude! You did not buy your option far enough out into the future. There really is a short term Silver shortage. JP Morgan may be forced to cover its massive shorts soon. I realize there is a lot of silver in the ground that miners can ramp up & get at to bring it to market. These miners have likely already sold those expected increased silver product into the futures market. A lot of this new production is likely factored in. It will take a year or more for these miners to put down this silver bull run.
