Thursday, May 5, 2011
The price of silver has plunged by more than 25% in just four trading sessions, as illustrated in this daily chart. Silver appears to be at the leading edge of the commodity price reversal that has blindsided many unlucky investors and speculators in the past week: gold is off by 5%, crude oil is down 13%, copper is down 6%, and gasoline is down 10%.
Those looking for an explanation for this point to signs that the U.S. economy is stumbling (e.g., the big jump in unemployment claims in recent weeks), since a weaker economy would reduce demand for commodities. I don't see convincing evidence of a material change in the economy's health (see my prior posts on claims and the ISM service sector), but the runup in commodity prices had all the looks of speculative excess (see my post on silver). We may discover what really triggered this commodity reversal in the fullness of time, but I doubt that it was any sudden change in the dynamics of the U.S. economy. Like the housing market, this could just be a speculative bubble that has burst.
Posted by Scott Grannis at 12:39 PM