Is this the beginning of the end for silver prices?

This could very well end up being the worst week for silver prices since 1975, but that doesn’t mean the end of the bull market in silver is near. In fact, it could mean the opposite.

It looks like you couldn’t have found much better of an investment than betting against silver this week. The white metal’s fallen 25 percent since the start of the week. According to the San Francisco Chronicle, this could very well end up being the worst week for silver since 1975!

It doesn’t look like things are going to get any better in the short-term either, though. The CME Group, which owns the Comex, announced on Wednesday that it was raising margin requirements yet again. This time to $21,600 as of the close of trading on May 9. That’s more than 80 percent higher than margin requirements just two weeks ago.

When traders are unable to come up with the extra cash to meet their margin calls, their accounts are typically liquidated. That further lowers silver futures prices and potentially triggers more margin calls for other traders.

Where do silver prices go from here?

The fundamental mood of the markets appears to be shifting. Investors grew pessimistic after a report showed an unexpectedly high number of jobless claims. All told 474,000 people applied for benefits last week. That was a jump of 43,000, and it set us back to where we were in August.

The Bloomberg Consumer Comfort Index also fell to its lowest level since the end of March, according to BusinessDay. Analysts speculate that high gas prices are to blame.

The net result, though, is a growing sense that we’re still a long way from a recovery, and if the global economy begins slowing, the demand for industrial silver could compound the price erosion we’ve already seen.

And yet, I’m still bullish on silver. Here’s why: the inflation story hasn’t changed. In fact, a worsening economy means we’re probably going to see even more reckless policy decisions come out of the Federal Reserve – a fact that will eventually push the dollar lower than the multi-year lows we’ve already seen.

I won’t deny that the plunge in silver prices doesn’t feel like a panic, but it’s important to realize that the run-up over the past two months felt like a mania. Even at $35.50 an ounce, silver’s still trading where it was just two months ago at the beginning of March.

The metal’s 18 percent higher than it was on Jan. 1. Eighteen percent is a price appreciation most mutual fund managers would kill to have over the course of a year. So long as the price of the white metal can hold above $30 an ounce, I’d look at this a temporary blip in a longer-term trend that’s pointing up.

Yes, some of the richest investors in the world – Carlos Slim, George Soros and Eric Sprott, for example – might be selling off chunks of their silver holdings, but I wouldn’t be surprised if they move back into the space in the days, weeks or months to come. After all, there aren’t many other good places to hide in the face of inflation. Until we see more fiscal responsibility out of Washington or a pronounced improvement in the U.S. economy, that’s one story that isn’t going to change.



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