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I always get skeptical of silver price action when I see it rapidly increase on a Friday as markets wind down. Don't get me wrong. I love to see my metals appreciate in value. I just don't trust the markets when I see that level of volatility.

The physical market follows the paper spot market, despite the fact that the physical availability is nowhere near the amount of paper contracts that are passed around. If you have a large amount of people desperately buying gold or silver, price starts to spike.

If you have a lot of people shorting silver or gold, then the price starts to plummet. Most of the people are basing their decisions off the news, state of the economy and the world,.etc. Ultimately, however, the majority of people are buying and selling purely based on emotion and speculation.

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Market Manipulation
I'm one of those who subscribes to the market manipulation theory. In short, major bullion banks like JP Morgan, Bank of America, and even some larger foreign banks, don't want the price of gold or silver to rise too much, because gold especially is the indicator of whether people feel good or bad about the economy. The gold market is such a large market, that they can't massively move the price by shorting it. Instead, since the gold market tends to track between a gold to silver ratio of 80:1 and 100:1, these banks manipulate the silver market. This is ultimately used to deceive the majority of investors into selling their gold paper contracts en masse, so the paper price of gold does down.

True Price Momentum...Or A Trap?
There have been numerous times where the price of silver was allowed to climb higher quickly, only to have it smashed back down as quickly as it rose. The bullion banks are notorious for doing this, profiting on the spread and shaking out weak hand traders panic selling off their paper contracts.

It'll be interesting to see how things play out. Some are speculating that with the news of the Iranian president possibly dead from a helicopter crash, this could push the price of metals higher. Personally, I doubt it would as I doubt most of the world cares one way or the other what happens to Iran's president.

As the markets opened in Asia, I wasn't surprised to see prices continuing to climb. I wouldn't be surprised if prices were allowed to rise for a short time of a week or two, only to be hammered back down once enough paper traders got greedy and foolishly bought in at the peak, hoping to make a quick profit. What they don't realize, is they're like the man in the image below and the rockets giving the price spike momentum are about to fail as we go over the cliff's edge, and then we'll have nowhere to go but down.

(Created with Bing)

Then again, I could be completely wrong and the price of silver hits $40 before it sees any sort of pullback. I'm not a financial advisor and I'm not "in the know." One thing I do know, is it's typically best to buy when everyone else is selling (Assuming good fundamentals) and sell when everyone else is buying. I prefer to dollar cost average and hold off on any major purchases during these major price moves, but that's just personal preference.

Do you think the price of silver will continue to increase, or do you think we'll see a pullback?

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