It has not been an easy time for investors in commodity and commodity-related securities this past month. Nearly all commodities have plunged in the last 30 days, some to new 52-week lows.
Why has this happened? There is one main reason – the perceptions at many Wall Street firms and hedge funds have changed. They believe that all the government bailouts of financial firms will work. From seeing the US economy as being very weak and the rest of the global economy as being fairly strong, it has all now reversed.
Now the hedge funds see the U.S. being the best of a bad lot. Since commodities are seen as a direct play on the global growth story, they were sold off aggressively. This changed perception has sent not only the commodity sector lower, but also foreign currencies such as the Euro and Australian Dollar much lower over the past month.
One of the commodities sold off most aggressively has been silver. The price for silver has plunged approximately 50% from its multi-decade high in March of $21. One of the easiest ways for individual investors to participate in the silver market is through the ETF (Exchange-Traded Fund) from iShares – the iShares Silver Trust (SLV).
The iShares Silver Trust literally holds silver bullion for the benefit of its shareholders. There has been something interesting occurring with SLV during this sharp slide in the price of silver. It would have been expected that normally people would have been selling SLV, which would have forced iShares to actually go into the market and liquidate some of the silver bullion they hold. What has actually happened is that iShares has had to go into the market and purchase silver bullion because of the increased purchases of SLV by individual investors. The inventory of silver bullion now held by iShares is more than 20% higher than it was when silver was at $21! That fact in itself means that SLV should bear further watching.
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