Yesterday, the price of silver spiked by about 10%. We wrote that it was driven by:

“…buying of physical metal.”

And we added:

“This is a pretty good signal that a bull market may be returning to silver. Let’s watch the basis and price action closely and see how it develops before we join the pack…”

Today, the price was up another 50 cents, or about 2.2%. The question on everyone’s mind: was there more buying of the physical?

Well, it’s complicated.

(Click on image to enlarge)

We broke the day down into 4 segments, to show 4 different trends. In trend 1, we see a rising basis while the price is moving sideways and then down. The move down is not small—75 cents. We crossed out the brief spike in basis and drew a blue line to bridge the gap, as we think the spike was spurious (it occurred before the trading day opened in London).

Next in trend 2, there is a big drop-in basis, from about 8.5% to well under 5.5%. This occurs with a volatile price, which moved up from around $21.90 to $22.40 during this period.

In trend 3, the price moves up from $22.40 to $22.90. Meanwhile, the basis moves up and then down. The basis line looks like a decent fit with the price line. So this period was characterized by speculators positioning and repositioning.

In the final trend, the basis moves up sharply while the price moves up from $22.90 to just over $23.00.

In other words, silver was becoming more abundant during the early part of the Asian day, before Europe came online. Speculators were buying futures. Then, just after 9:00 am in London, buyers of metal turned up. By 16:00 in London—which is still morning in New York and early morning in California, there was a blip of futures speculation followed by more buying of the metal. Then the metal buyers were exhausted, but the futures speculators kept the price eking higher but only by pushing the basis up from 5.5% to 7.5%.

To summarize: the day showed mixed action. This is not a reversal, and it does not mean that Tuesday’s action was a flash in the pan. But nor is it quite another day in the same mold as the first, with rising price all day, and falling basis pretty much all day too.