Thoughts on the commodity massacre

For those that have been following, the commodity complex was absolutely decimated with silver leading the decline with a brutal 13% loss. Crude oil followed with a 10% decline. The US dollar popped against other currencies as the US dollar carry trade blew up in many traders faces. The carry trade is simply when investors (speculators) borrow in a falling asset class to fund other investments that are high yielding or rising. As the dollar continue to decline in value against commodities and other currencies, traders borrowed in dollars to buy the rising assets. Hence, the term carry trade. The risk of course is when the trade is too crowded and can cause terrible losses for those that are caught holding the bag.

As my readers know I'm a silver bug and have invested in silver for the past 3 years. I have been warning about a correction for some time and alas it is here. The last couple of days have been brutal but not necessarily unexpected. On a technical basis the silver metal was insanely overvalued. Throw in some multi-pronged attacks from the powers that be (record margin requirement increases from numerous trading exchanges) and the result is a 30% crash in as little as 4 days. Whereas in the past the government physically confiscated precious metals, today the exchanges change the margin requirements again and again and again until leveraged holders are forced to sell, hence the violent collapse in price. However, due to the artificial methods employed by these institutions to bring down the price of silver, the end result will be a silver shortage. Anytime governments institute price freezes on any commodity, shortage is the result. Thus, as soon as the price falls to a level that I feel comfortable buying I will resume my personal silver purchases. Consider this takedown a gift.