Post Analysis of the 2011 Silver Crash would like to start off by saying that we whole heartily believe that SILVER will be one of the best investments of our lifetimes, if not human history. Since we first made this statement, silver is up 100% even after last week’s crash. For those of you that are new to silver or for those that think we are exaggerating, PLEASE before going any further, watch this video that we made December 31, 2010. It will take you less than 7 minutes and it will make you more knowledgeable about silver than 99.9% of all investors.

Silver This Decade

We wanted everyone to watch this video so that when it comes to knowing the long term fundamentals for silver, we are all on the same page. With that said, take some time to analyze the current silver market.

200 Day Moving Average

Silver is now the furthest from its 200 day moving average since November of 2008. Remember the timing of 2008, most investors thought it was the end of the world and were liquidating everything. Silver itself was also almost exclusively looked at as an industrial metal and therefore was sold off due to a slowing economy. Today, silver has been restored as a monetary metal for many investors, so you have to consider the biggest difference between 2008 and 2011, and that is that we are moving into a currency crisis, not just a slow down in global economies. Now when it comes to the 200 day moving average, throughout the current bull market any time silver has moved below 0.95x the 200 day moving average, tremendous gains have followed. Silver is currently around 0.86x its 200 day moving average. -Very Bullish-

2008 Post Traumatic Stress

Many in the investment community, including silver bugs, took a lashing in 2008. So, in order to prevent a repeat of 2008, many are causing that exact scenario to play out. No doubt this makes the Federal Reserve very happy to see commodities take a hit. Forced liquidation selling from stock market and commodity investors have put extreme pressure on previous winners likesilver. With all assets falling together, investors have been forced to raise cash to cover margin calls. Silver, being one of the biggest winners in the past year, was the first one to sell for many as it is very liquid and many fear another 2008 when silver collapsed over 50%. Of course this put extreme selling pressure on silver last Friday when we saw the biggest one day dive insilver since 1984.

The Federal Reserve Head Fake

The market has been pricing in QE3 since mid July, not getting it at the end of August was shrugged off with rallies that they would get it at the end of September, not getting it then caused a sell-off. Silver and gold of course were seen as the biggest winners for a QE3 announcement, so when it didn’t happen, investor panic set in as many felt that gold specifically was overpriced. In the west where the precious metals are seen as speculative commodities, it was easy to see how investors could easily become spooked. Remember, silver was around $25 per ounce when QE2 started, so the anticipation from investors that silver would blow through $50 an ounce once QE3 was official, was very high. We should note that we have no doubt that QE3 will start soon, but as we have said all along, the Federal Reserve needs a crisis before it can unleash its next dose of money printing.

CME Raised Margin Requirements

As we said on Friday (minutes after the news came out), “no doubt that this was leaked” and added to the silver sell off. On Friday after the close, the CME hiked gold margins by 21%, silver by 16%, and copper by 18%

By raising margin requirements, expectations added to the selling pressure by not only investors who needed to liquidate positions as a result, but those investors who feared another crash in the silver price.

Other Important Points to Remember

  • Since the peak in the housing bubble in 2006, this is the 19th time silverhas seen double digit declines over two trading days.
  • Silver is oversold, The Relative Strength Index is at 23, which typically means that silver is about to bounce higher from here.
  • The historical gold to silver ratio of 16 to 1 is still at an extreme of 52 to 1.
  • The long term fundamentals for silver, as shown in our ‘Silver This Decade Video,’ are still in place.
  • Europe and the U.S. are both about to push the currency war of devaluation to new extremes.
  • Physical silver is trading between 33-36 just for regular bullion ounces.

Is Silver Cheap?

In the big picture, silver is cheap, the above ground available supply has fallen 90% in the past 60 years. In our opinion, at some point in this decade the headline ‘Silver Shortage’ will be seen in national news stories.

In the very near future, the indicators we pointed above show a silver price that should at least stabilize if not bounce back up to support above $33. However, with central planners and constant manipulation in the silve rmarkets, it is always possible for silver to go down even more. If that happened, $33 support could end up being resistance, with the $26 mark being the next major level of support from here. If you don’t own any silver, this is a great opportunity and if you already own, you might want to take a wait and see approach in order to see how the next trading day plays out.