Silver Price Recovers From Its Flash Crash

After writing about the sharp silver price drop yesterday late afternoon US time / today midnight European time, the silver price has recovered greatly from its losses. Gold is almost back at the point where is started the Asian trading session. At the time of writing (10h30 EST / 15h30 GMT) dollar gold is trading at 1358 an ounce (close to where it closed Friday evening) and dollar silver at 21,8 (which is some 2,5% lower than Friday’s close).

On the chart below it appears that the number of silver futures contracts were over 3,000 in the first hour when Asian trading opened, with the largest part of the trade in only fifteen minutes (although not visible on the chart). Jesse writes that “2500 contracts traded in 15 minutes is a near record for an off hours session.”

As we said earlier the absence of bids was the main reason of the ferocity of the price decline. Asia had just opened, Tokyo was only awakening, Europe had a bank holiday. The perfect ingredient for a manufactured price decline.

The silver price briefly touched $20.30, which is approximately the same price point before the 2008 crash started (from 20 to 7 dollars). For now, it seems that this critical level has held, which could be an “encouraging” sign for the bulls. With so much pessimism among traders vis-à-vis the metals (or, in other words, with so much optimism vis-à-vis the dollar and equities) it remains to be seen if this point will hold in the coming weeks and months.

For now, we believe that the downward pressure on the metals prices has reached a point where a bounce (at least a temporary one) is imminent. Too many technical traders are in the bearish camp (as reported in the latest COT report and in a grotesque way magnified by Bloomberg). Meantime, the commercials have positioned themselves increasingly long. It seems that they are ready to extend their profits on a rally, after their gigantic profits during the crash mid-April. The ferocity of a potential short covering should be the main theme at the desk of the commercials right now.

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