Many late-comers to the silver party were trampled by last week's mad rush out the door.

 

A scene like that eventually happens after a market's prices go up exponentially. That was the story in silver -- it was up eight of the past nine months at the end of April.

 

Speculative fever burned hottest toward the end. Daily buying volume on the iShare Silver Trust (ETF) set a one-day record shortly before the top. As the head of trading for one brokerage firm put it, "Day traders are going crazy."

 

And soon another kind of crazy set in: Silver fell 30% in five trading days.

 

The April Elliott Wave Financial Forecast (published April 1) warned subscribers:

 

"...silver’s rise is no secret...A bullion dealer can conceive of no possible rationale for lower silver prices: 'If the economy recovers, that’s very good for silver because there will be huge industrial demand. If the economy is doing badly then people will buy silver as a store of value.' Somehow, he forgets that silver does, in fact, go down...The just stated rationale says silver should be owned no matter what. But the waves say this is a bad bet."

 

Even so, some silver analysts still sing silver's praises. Dow-Jones Marketwatch (5/9) quoted a precious metals book author who said, "seasoned investors and speculators understand that last week’s 34% correction in silver had nothing to do with any major changes in silver’s overall fundamentals or long-term outlook...They understood that silver was temporarily over-bought and the tipping point was the unprecedented margin increases by the exchange."

 

Do "margin requirements" explain the metal's swift price tumble? The just-published May Financial Forecast says:

 

 

The Dow-Jones Marketwatch article also had this from a chief market strategist: "Despite the [silver] sell-off the big picture trend is higher...Too many people are being convinced that the recent rally was a bubble."

 

If silver's exponential rise wasn't a bubble, then exactly what was it? Were traders responding rationally to "silver's overall fundamentals," as the book author claimed? Let's return to the May Financial Forecast:

 

 

Investors who believe that silver's decline is a buying opportunity will be well served by reading the May Financial Forecast -- which begins with a Special Section on silver. You can also read our latest analysis on gold.

 

You can also see our revealing chart on the silver/gold ratio, plus a chart which shows record high buying followed by record high selling in the daily iShare Silver Trust (ETF). Read our in-depth commentary about silver as you follow this link for your 100% risk-free read of the latest Financial Forecast>>>