After the bloodbath of the past few days, as we try to evade the ravens circling overhead, let's remember that what does not kill a secular bull market only makes it stronger. A very similar sell-off to this one happened in 2008, silver falling from $22 to under $9. Yet the sell-off could not kill the silver bull, so it emerged even stronger for its next move up.
But that move up didn't start for another year. A chemistry analogy here is apt. Knowing the final outcome of a chemical reaction tells us nothing about its rate. The final outcome of a piece of paper is disintegration, as oxygen slowly eats away at it. But without the right catalyst (e.g. a match), though the paper will slowly turn yellow and start cracking into fragments, it will still be recognizable as paper for a very long time. So can it be with fiat currencies and the value they lose over time. PM bugs are confident that the dollar will eventually achieve its intrinsic value and equilibrium point (i.e. zero), but they should not extend this confidence to where it does not belong: the rate of its decline. Depending on the catalyst, the dollar can collapse tomorrow, or it can take a decade. Or longer.
In that regard, my gut feeling is that silver will be dead money for a while. It will not be making its way back to $40 any time soon. The chart is just too atrocious, the psychological damage of a 25% decline in 36 hours too scarring. I suspect some kind of foul play, because even Enron didn't crash that fast as revelations of the most egregious fraud emerged. There's an almost comical, artificial aspect to the price action of the past 2 days, but I'm not really qualified to speculate about the eminence grise behind the curtain. A commenter on Kid Dynamite's blog asserted that claims for silver's irreplaceable industrial usefulness are quite exaggerated. If so, then the violence of the price action could possibly reflect silver's industrial expendability + its still somewhat tenuous position as a safe haven relative to gold. Could we be confusing industrial potential with industrial usefulness?
Regardless, at any point in space and time, past and present, a silver coin has been (and is) regarded as something valuable, the way a gold coin is. So, while I'm not quite convinced of Sprott et al's claim that silver is the investment of the decade, I think if gold has plenty of upside, silver will at least follow it. And if, upon following gold up, it breaks $50 … watch out.
In that spirit of optimism I will present a bullish silver chart (bullish if silver does not fall below 30, which I give less than 50% odds). Back in June, I had a post titled "Silver 2003- ????" where I drew two trend channels in two different ways. I've been going with the steeper trend channel since then (mostly because it fit the weekly data better), but the less steep trend channel now looks better:
And, so as not to expend all my optimism on silver, here's the monthly chart for gold. Frankly, a red month here is healthy, especially if we don't go below the August's starting point, when we first broke out of the wedge.