Why did Silver go down during the 2008 crash?

[Robert]

I would of thought people would be buying Silver like mad, but it tanked down, why was this?

thanks

[Sparky]

This is largely attributed to forced de-leveraging. Most big investors are heavily leveraged, i.e. they borrow heavily on their assets and invest the borrowed money. When markets go up, this increases their profit many-fold.

When markets plunge, they hold insufficient assets to cover their borrowing, so they are forced to sell a lot of their borrowed assets, whether they are fundamentally sound or not (like their silver holdings). Silver was likely a victim of this. It then gets compounded by panicking speculators who panic-sell once they see the decline, which accelerates the downside move.

Many GSUSers will tell you (including me) that when silver plunged from $20 to $8, you COULD NOT FIND small-size (10-oz or less) physical silver to purchase anywhere near spot price. This was a big signal that the sell-off was not based on fundamentals.

[Neuro]

Another reason is that JPM took over Bear Sterns long portfolio, they could go massively short, once they were shown Bear Sterns portfolio, prior to the take over, any losses on the longs of Bear Sterns, were covered by the tax payers, any shorts profit held by JPM, increased their profit margin. The drop in price of silver was absurd, that is why we see prices around 4 times the bottom of 2008 ($8.50) now, and 70% higher than the top in March 2008 ($21). We probably would have been at these levels (around $35), by the end of 2008, without JPM takeover of Bear Sterns in 2008.

[madfranks]

I've actually been pondering this question, as well as why we saw a sharp drop in PM prices right after the disaster in Japan. My gut instinct told me that rock solid financial protection in the form of gold & silver would be highly sought after and valuable after a disaster, but many people see physical cash as fulfilling this need, so many people and institutions may sell stock holdings and other investments for cash when times get tough. It's because gold & silver are not yet ubiquitously seen as "real money", but just another investment, that people opt for paper fiat money.

But in a way, they're right. Paper dollars will serve better as a medium of exchange after a disaster (barring a currency collapse type disaster). Years ago when a giant blizzard shut down our city for a few days, we went to the ATM and got enough cash to hold us through, we didn't go buy silver.

[Serpo]

I would of thought people would be buying Silver like mad, but it tanked down, why was this?

thanks


Some people have the T shirt .....I survived the 2008 silver takedown..... :D

Another reason for tanking is to scare off new investment and unless a person researches silver very well then this sort of thing would be devastating .

To a person who understands the silver fundamentals very well it was annoying or a load up op.

[hoarder]

People are wising up about paper silver. If there is another big dip like that, people will quickly buy up all the physical silver that hedged dealers have and physical will dry up fast. In a matter of days, there simply will be no physical silver to be had. That will wake people up even more.

[SLV^GLD]

I would of thought people would be buying Silver like mad, but it tanked down...
Some of us were. ;D
(apologies for not having anything smarter to add)

[Glass]

good recollection there Sparky. I remember there were massive margin calls across the boards which hit anyone who was leveraged. Within about 2 months the local property market was flooded with both investment properties and multi million dollar homes as speculators had to liquidate to meet their margin calls.

and yes people were buying like mad. Don't know any personally ??? but I did hear rumours. ;)

[pointinghelles]

Silver was probably a victim of this. It then becomes exacerbated by panic-selling speculators to panic once they see the decline which accelerated downside move.

[Trinity]

In general terms it was because the economy was facing a deflationary event at the time and many were unsure how the fed would react and with how much keyboard money. It was a true deflationary scare that lasted from the summer of '08 until March of '09. In market terms it was the secular mid rally washout that chased away the weak hands and gave those with a good idea how the fed would react a chance to buy in. We had a similar washout in the seventies rally, 1975/76.