Silver’s Next Leg Lower Starts Now

For a few short minutes Sunday evening, a bit of chaos roiled the futures markets.

Silver tanked at the open, dropping as much as 8% to a low of $20.25 before recovering later in the evening. Price continues to fight higher this morning. As I type, silver is off by almost 3%, while gold is only slightly in the red…

Here’s a real-time look:

The price of silver over the last 5 days

Not a bad comeback from the overnight lows. But the damage is done (again).

This move marks the beginning of silver’s next leg lower.

So here we are. Silver is dropping to September 2010 lows. And its ratio to gold is the highest it has been in 33 months, according to Bloomberg. This fact alone might tempt some speculators to bet on a silver snapback rally.

Don’t be one of them…

“Silver slumped 29 percent this year, making it the worst-performing precious metal, on concern that industrial use isn’t strong enough at a time when demand is waning for a protection of wealth.” Bloomberg reports. “Silver held in exchange-traded products dropped to a four-month low on May 17, while hedge funds increased bets on lower prices by the most since March in the week to May 14.”

As you can see, too many factors are holding silver underwater right now.

So where will it go from here?

I’ve told you before that the price of silver is in the process of retracing its gains from the 2010-2011 precious metals rally. Now is not the time to get lured back into silver. Even after a short period of consolidation in the $23-$24 range, major support levels are not yet visible. Sunday night’s breakdown to new lows on the year is another warning signal. Don’t ignore it…

This price shock is just the latest evidence pointing toward a hard landing for silver between $17.50- $18. This was my original price target for silver after the initial move lower earlier this year. It hasn’t changed. I now expect price to test $20 over the next several months.

Regards,

Greg Guenthner,
for The Daily Reckoning