The sharp correction in gold and silver happened just when the retail consensus to invest in them was at its peak. Every investor was gripped by the fear of missing out on further upside. Nobody was bothering too much about the downside. People saw gold and silver as assets in which an investor could never make a loss.
But losses invariably happen when an investor focuses only on the upside choosing consciously to ignore the near term downside. The misplaced perception that it was easy to invest in gold and silver was actually making Investors carelessly dump money into them near their all-time highs. This surely was no way to manage sensitive asset allocation decisions.
The manner in which money was allocated into silver last month was nothing short of cavalier. The investment hypothesis of rising industrial demand for silver from new age businesses was known for the past two years. The stagnant production of silver was also a well documented fact.
What triggered the FOMO and euphoria was the ban on exports from China, rising short positions and a never ending barrage of social media rumours. The silver trade got extended way too much and got so stretched that it had to abruptly snap someday.
The appointment of the new US Federal reserve Chief was merely the gentle prick that burst the bubble. Every bubble waits for such an event that ends it very quickly.
But the general tightness in demand- supply remains and production is probably not going to rise too soon either. The price shocks of the last two days will need to be absorbed and the markets will need to take fresh stock of the situation to decide where prices should settle.
But, after a sharp fall, it is unlikely that the euphoria will return anytime soon. This price crash was too quicksilver for people to forget so soon. The lessons need to be remembered for a long time to come.
