The Silver Market Implodes

It has long been the "conventional wisdom" that Silver is a good hedge against inflation. During recent weeks, commentators persisted in presenting all kinds of "fundamental" reasons why the price of Silver must continue to rise. Certain sectors of the investing public went along gleefully with this assessment, thereby driving prices higher and higher in a feeding frenzy of wild speculation. About 95% of interested investors were bullish on Silver. The "conventional wisdom" was that there was no other way for prices to go but Up.

The difficulty with conventional wisdom is that when 95% of an interested group is all of the same opinion, that's a sure-fire indicator that the conventional wisdom is wrong.

That has never been more starkly displayed than by the collapse of Silver prices during the last four trading days. From a closing price of $20.65 per ounce on March 14, Silver plunged to $16.85 per ounce at today's closing - a drop of 18.42%! The music stopped, one unknown speculator tipped the balance by his order to "sell," and everyone ran for the exits; but lo - the crush of the crowd was far too heavy for the doors to handle. So, instead of an orderly exit, there was a rout.

It couldn't happen. The "fundamentals" were just too strong and too persuasive for such a disaster to be on the radar screen. But it happened, just the same. No doubt many speculators - rather, gamblers - have been seriously wounded; but those of a contrary bent who were perceptive enough to see that the conductor had already left the bandstand got themselves to safety and profit in time, out of the path of the tornado.

This was a mania; and manias always come to an end. Even otherwise rational people willingly join in. Manias have a bad habit of being unkind to many of those who joyously take part in them, in the conviction that the music will continue forever.
William G. Kurtz Jr. March 20, 2008 http://www.candlewave.com

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