Why Are People Now Selling Their Silver?

So not only does each participant not agree with others on the right price, his own valuation today does not agree with his valuation from yesterday.


Price Is Set at the Margin

The market price reflects the interactions of all of these folks. It is set by participants at the margin. If some long-time holders sell one morning, then the price can move down. If that affects the value estimates of others and they sell, then the price can go down more.

The quality of the dollar may be falling steadily. Or it may be falling in bursts, with relative stability in between. The valuation judgments of the gold and silver market participants can get ahead of, or lag behind, the quality of the dollar at any given moment.

And they can trade based on momentum too. It is a common feature that when the price of something, e.g. silver, is rising, more traders pile on to what they see as easy money (i.e. dollars). So momentum is practically guaranteed to overextend a price move beyond the current valuation. Clearly, this happened in 2011. Silver hit nearly $50, which means the dollar fell to about 633 milligrams of silver.

The more the dollar is overextended to the downside, the more people begin to think it’s time to trade their money—i.e. metal—to bet on the dollar (yes, we do realize they don’t think of it in these terms). So a too-high price of silver begins to attract selling. At that point, there is a battle between the forces of momentum vs. rational valuation. But when momentum stalls, then the battle becomes lopsided. The price of the dollar could (and did) go far up indeed.


Some Speculators Hold

Now add one more factor to the mix. Many dollar-thinkers only buy gold and silver in the hopes of riding it to a higher price. They bet on money, only as a means to an end. They want more purchasing power. Some of them don’t like to sell at a great loss. They bought with great promises of silver to $200 and gold to $5,000. But the opposite happened. So they stubbornly held.

And now, years later, the price is rising. So they see it as their chance to get their dollars out, with less loss. They’ve seen price blips many times since 2011, and don’t trust that this blip will be any different from all the others (it actually is, see below).

Do these people assess that the dollar should be worth more than 1.6 grams silver? In effect, yes, that is their calculation. And more importantly, that is their effect in the market. They don’t think the dollar should—or more accurately, will—go down anymore so they buy dollars in anticipation the dollar will rise to 3g silver again. Or at least fear of holding silver while that move happens.

So there can be periods when the marginal market participants assesses the value of the dollar as 0.1g lower every day. And periods when they think it is rising 0.1g daily. There is no universal value that everyone can see. However, there are positive feedback loops and confirmation bias. There is momentum and therefore overshooting in both directions.

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Currency Trader 1 month ago Member's comment

I think silver it’s worth less than it was 50 years ago factoring in inflation. Gold is the same way although I do use it is a hedge short term. Long term both are terrible.