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Many people are crying foul after the recent collapse in silver prices.  Prices are down a full 33% from their overnight highs just a few months ago.  Now, I won’t sit here and pretend to be a silver expert, but this looks to me like a classic case of bubble market dynamics.  I was very clear in April about this “excessive risk”:

“This is not a popular call, but investing isn’t a popularity contest.  The bottom line is that silver prices are on an unsustainable course.  If I had to pick one bubble in the world today it would be the silver market.  As is always the case, the fundamentals are always superb in a bubble, however, the market action never quite correlates appropriately.  As I’ve said before, silver prices could double from here.  On the other hand, they could also crater.  If I am going to invest in precious metals there are lower risk ways to obtain exposure.”

A solid underlying fundamental picture got overhyped, massive price appreciation occurred, an epic bull market turned into a bubble (largely fueled by misconception about “debt monetization”, hyperinflation, QE2, etc.), prices blew through the roof and now prices are cratering as a result.  This is nothing that we haven’t seen before.  Even given the recent massive price declines, silver has still had an extraordinary 10 year run from just $3 to $33 today!   You don’t have to find some boogeyman under the bed to explain the recent declines.  All you need to understand is a little market history, human behavior and market dynamics.

But some are saying it’s the result of foul play.  Eric Sprott (who actually is a silver market expert) believes there is more to this story than just bubble dynamics.  In this excellent piece he outlines his bullish case for the precious metal:


Source: Sprott Asset Management


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