Silver at $20 by Dec. 30?

Long-term holders of silver might have to brace themselves for actually showing a loss for calendar year 2011.

How they would react to such an outcome will tell us much as to whether the 10-year bull market the precious metal has enjoyed still has legs.

How can I write such a heretical assertion?

Well, simply consider two things.

The first is yesterday’s price action. The metal declined $2.32 in one day. Moves of this magnitude have become all too common this year both going up and coming down.

What this simply means at the moment is that the silver market is one trading day away from showing a loss on its year-to-date performance.

For traditional bullion holders familiar to any coin collector, their reaction is probably so what?

But the silver market now has a large player known as Wall Street’s exchange traded funds.

Buyers of those funds tend to evaluate their performance at this time of year and get out of positions that will embarrass them in front of their clients and bosses.

Today, silver can be said to have done better than shares in corporations so far this year. Another bad trading day in silver, though, and this will no longer be the case.

If owners of exchange traded funds in silver decide to cut back, what will happen? The metal could easily decline further. Further declines could create enough unease in other holders that they too will sell.

The possibility of this type of negative peer pressure will last until the end of the year. In January everybody gets to start again with a clean slate.

How low could silver go with this kind of selling between now and then? Down to $25 an ounce? $20?

Why would silver ETF owners react negatively and sell? If they also happen to own or watch platinum and palladium, they know that these two metals are already down for the year. They might not want to take a chance on another metal turning negative while they own it.

By New Year’s Eve, the world of silver investing might look entirely differently than it has for many years.