Wednesday, August 25, 2010
it gets hit hard by the illegal manipulative activities of JP Morgan and HSBC. BUT, here I go again. I will preface this by saying that silver has an extraordinary reversal off of its 200 dma over the past 2 trading sessions - $17.75 to $19, or nearly 10% - so a consolidating pullback here would not surprise me. Having said that, if you look at the chart below, silver appears poised to make a big move, with seasonal factors now blowing some wind into the sails of the poor man's gold. I slightly modified this chart, which was posted in tonight's Midas at http://www.lemetropolecafe.com/ courtesy of "Richard from the Scarborough Bullion Desk:"
(click on chart to enlarge)
This is a weekly chart of silver, and the relative positioning of the standard momentum indicators are tremendously bullish. Also, as Richard pointed out, the bollinger bands have become quite narrow, indicative of a tightly "coiled" trading behavior which often makes a big break up or down. As you can see, the last two "coils" made huge moves to the upside. And finally, there's that massive inverse head n shoulders formation, with the "right shoulder" oscillating just below a potential breakout to the upside. I know several long-time participants in the silver market think we could see the low $20's before the end of the year. I also know one chart technician who believes this silver chart is pointing toward $30 sometime in the next 6-9 months.
Personally, I'm not putting any price objectives on silver here. I think if silver can get over the $19.60 area and hold, the sky is the limit. Certainly new highs in the low-mid $20's would be my expectation.
And then there's the physical problem. I know that Sprott is going to float its silver trust sometime in mid-late October. I mentioned to a colleague that they may find it difficult to find $200 million worth of silver (the proposed offering size, roughly). He said that they are aware of that issue...
More evidence piles up: Let's not forget the old gold/silver ratio. In Roman times, the gold/silver exchange ratio was fixed at 8. After The Fall, the ratio floated in mostly the teens. Since the world has been on a steady fiat currency diet, the ration has spend most of its time somewhere between and 50 and 80, although in 1980 it fell back to 17. Currently the ratio is approximately 64. I expect that eventually we will see some regression to a long term mean ratio, but it will hit the teens again before the metals bull is over. Here's an article from Bloomberg: LINK Zombie U.S. investors are clueless, but as you can see, the real precious metals players globally understand the gig.
Posted by Dave in Denver at 11:22 PM