Precious metals made a very strong move southwards this past week as we experienced a global equity sell-off following the decline in the Chinese stock market.
One of the precious metals that slid very strongly in a short period of time was the Silver market (SI-SpotV). In Chart 1 below I have highlighted the last three pullbacks in the Silver market and numbered them from 1 to 3. We will look at each pullback separately to work out the value of each decline in US Dollars.
The Margin requirements for Silver traded on the New York Mercantile Exchange (NYMEX) is US$5400 as of 2 March 2007.
One contract controls 5000 troy ounces of Silver.
Silver moves in increments of a half cent ($0.005).
Each half cent movement is the equivalent of US$25.
Chart 1 â Silver Daily Bar Chart
The first pullback was from the high on 5 September 2006 at a price of $13.37 down to the low on 15 September 2006 at a price of $10.55. This equals a $2.82 drop in price in eight trading days.
There are 564 ticks or price movements in $2.82 ($2.82 / $0.005).
The value of the first pullback is $14,100 (564 x $25).
The second pullback was from the high on 5 December 2006 (exactly three months from the date of the previous top) at a price of $14.37 (exactly $1.00 higher that the previous top) down to the low on 5 January 2007 (exactly 4 months from the date of the top of the first pullback) at a price of $12.10. This equals a $2.27 drop in price in 20 trading days.
There are 454 ticks or price movements in $2.27 ($2.27 / $0.005).
The value of the second pullback is $11,350 (454 x $25).
The third pullback is currently running from the high on 27 February 2007 at a price of $14.72 down to the low of 5 March 2007 (the current time of writing) at a price of $12.49. This equals a $2.23 drop in price in the last four trading days.
There are 446 ticks or price movements in $2.23 ($2.23 / $0.005).
The value of the third pullback to date is $11,150 (446 x $25).
The three last strong slides in Silver have equated to $14,100, $11,350 and $11,150 respectively.
With the March 2007 contract due for expiry on 28 March 2007, its volume has dropped considerably in comparison to the May contract. So the most recent prices are quoted on the May 2007 contract.
It will be interesting to see if this pullback in Silver is complete. The next leg of the bull market run is about to commence as the global equity markets look to be oversold, putting a halt to the sell off in commodities.
Mario La Marra