Silver moves past old high and heading much higher
Posted on 20 February 2011 with 12 comments from readers
A week ago and you could have made a good argument for the silver price being at a double top. And typically after confirming a previous high, a downturn would be in prospect.
But not after prices jumped to $32.60 by the end of the week, comfortably placing silver in a fresh stage of upward momentum.
It is not hard to reason why. There is the weakening dollar. Geopolitical upsets like the Arab World’s revolution in Egypt and its knock-on impact on Bahrain. Or the US budget deficit.
Hard assets
The rush to hard assets continues. Some observers will not be convinced of the silver price break out until it is confirmed by gold which has been a laggard in this rally and still not above its recent high of $1,430.
That confirmation should not be long in coming. UAE gold sellers report shortages of gold in January as canny local investors bought at lower prices. Mints around the world are having to ration coins.
Metal analysts see silver now heading to $36 before any further correction. But silver has always been volatile. It does, however, almost always outperform gold on the upside as well as on the downside.
Gold prices do not seem very vulnerable to anything except a major correction in global stock markets. That could jump out of the woodwork at any moment. Stocks have not risen this far, this fast since the mid-30s and that was followed by a massive plunge.
Goldman selling or buying?
Goldman Sachs was on Bloomberg Europe last week telling viewers to buy, while the previous week it emerged that its own house position is that there is nothing worth buying anymore (click here).
But any stock market downturn (if they actually happen these days) would test precious metals and rally the dollar. For those daring enough to short equities at this time this would be a great buying opportunity for gold and silver.
These are the kind of strategies that we follow up with actionable investment ideas in the ArabianMoney newsletter, and no prizes for guessing that the next issue will be about what revolution means for investors (click here to sign-up ready for a landmark edition).
In the meantime, if you are a gold bug, should you not now also be thinking about silver (click here)?
12 Comments posted by readers:
I think we head to $34 before we correct. I would say that if we dip into the $29-30 mark I would use it as a great buying opportunity. SLV calls have been paying off well these days. I’m wondering though what would happen to Silver were the US market to see a big correction or crash. At the moment all looks bullish but all that can change were a few big Hedge Funds to start dumping or unloading their positions. All eyes on Apple these days too because of Steve Jobs’ Pancreatic Cancer.
Another great and factual commentary on investing!
Take ArabianMoney.Net’s Advice Seriously:
This is a plea/request/exhortation to all readers of this website. Over the past six months or so, there has been no less than 5 or 6 commentaries that pertained to silver investing, and I believe I’ve commented favorably on every one of them.
The silver “supply/demand” curve is extremely tight now, and many funds like the Sprott Physical Silver Trust that buy physical silver (vs. the “paper silver” stuff offered by the US COMEX) have been reporting extreme shortages of physical silver, as well as 8 week delays in obtaining the metal. Sprott re-interated their position that silver will continue to go up sharply in 2011; here’s one of many references:
http://seekingalpha.com/article/251387-investment-guru-eric-sprott-says-silver-will-soar-in-2011
@ Andy & John Mark:
When I think of this blog’s prior commentaries on silver, I also think of readers’ names like Andy and John Mark, both of whom have likewise commented on silver investing. At the present moment, only Andy has commented. Andy, you ask a very good question, and one that my son’s wife was also asking.
What Happens to Silver, if There’s a Stock Market Correction?
While nobody knows for sure what will happen to the silver price, it’s a very good bet that both silver and gold would fall, along with the general market; but it’s also a good bet that the precious metals “correction” would snap back much more quickly than the general market.
Those who are in agreement with the above assessment may want to ensure that they have “some” physical silver now; but it’s also prudent to keep some cash (i.e. fiat paper) in reserve, for further silver buying, when the general market falls.
Don’t forget about the expiry period for the March 1, 2011 contracts at COMEX. It is suspected that the vast majority of the open interests may stand for delivery and refuse to be settled for cash nor rolled over into the next month. I ran across a group of people who supposedly claimed that this was their goal, to get enough people to stand for delivery. It only takes anywhere from 6,000 to over 8,000 contracts to break COMEX, supposedly. We’re talking over 55,000 contracts standing for delivery thus far.
A number of people are saying this is the Big One come March 1st. I want to be very conservative by saying, “I dunno. I have a feeling that even if that is supposed to happen, the regulators are apt to step in and declare force majeure or even rewrite the rules to protect the shorts against a complete delivery schedule as requested by the longs.” There is the very real possibility that it could happen in the next 10 days or so.
At that point, expect the physical market to separate from the paper market, like a paper towel from a roll. Cleanly and loudly.
Silver is really going now…
http://www.kitco.com/market/
Silver testing $34 mark soon.
http://data.cnbc.com/quotes/SICV1
@Stephanie:
Excellent commentary about the COMEX options expiry!
China is Standing for Delivery:
China has been eating the LBMA’s and COMEX’s lunch! What is not very well known is the fact that, over the past few months, foreign buyers (most notably China sovereign funds) have been draining the physical gold and physical silver from the COMEX (aka CRIMEX) and from the LBMA by insisting on delivery, instead of “settling” for a 20% cash premium to roll over (on a daily basis, most of the physical metals are traded over at the highly corrupt LBMA). Given the signfiicant civil unrest in the Middle East, I suspect (but do not know for sure) that some very wealthy Arab families have been doing the same thing. In a desperate act to “counteract” these moves, the CFTC record shows that there’s been vast quantities of physical metals leaving the ETFs GLD (“managed” by HSBC) and SLV (“managed” by JPM), while, paradoxically:
1) gold and silver have been rising, and
2) more investor money is being placed into these ETFs!
Hmm, no surprise here, since business ethics and “fiduciary responsibility” are terms that Wall Street doesn’t understand, nor even cares about!
Force Majeure Coming?
As I often say when I’m unsure of something: “dunno.” The record shows that there’s over 48,000 contracts that stand for delivery, but surely the government will interfere, and the net result, as you’ve said, is a separation between the “physical silver price” and the “paper” silver price.
“Don’t forget about the expiry period for
the March 1, 2011 contracts at COMEX.”
Indeed, Stephanie, the next six trading days will be “the pits”.
More comments paralleling those here but less punny @
http://crowlee.proboards76.com/index.cgi?action=recent
@ Andy & andy, you may consider NOT pricing silver in USDs.
That is like making measurements with a rubber ruler.
Try looking at a silver ounce as a percent of a gold ounce.
On stockcharts.com use $SILVER:$GOLD as the argument.
@ obewon – Looks like the ETFs are being forced into smaller
and smaller fractional reserves of physical. Force Majeure and
Commercial Signal Failure coming to markets near us soon, imo.
….. BUY ……
… SILVER …
… CRASH ….
….. JPM …….
@ Denarius:
Others may not know the historical significance of your internet name; I say this, in the hope that they may google it! Caesar would be proud!
Interesting observation about the fraudulent ETFs (GLD and SLV). While a Force Majeure is “supposed to” be reserved for extremes, such as a war or acts of god, corrupt governments will use it as an excuse, whenever it’s in their best interests. So I like your phrase “coming to markets near us soon” . . . maybe sooner than we think!
Italy had better hope that the remainder of their winter is mild!
Update for 23 February 2011:
Yesterday, there was an astonishing amount of physical silver that was withdrawn from the SLV ETF, for no apparent reason; the amount was over 5,600,000 troy ounces!!! This comes at a time when the SLV ETF has been taking in a huge amount of fresh money from investors.
As one of the seasoned metals traders said, “the COMEX must be needing a huge amount of silver to meet their March deliveries.” One has to wonder how long this pilferage from the SLV ETF will continue . . .
Here’s another update on the silver open interest for March:
As of yesterday, the CME reported that OI for March declined to 39,528 contracts. I expect that this number will continue to decline as we move ahead. However, at the end of this game, if there’s at least 15,000 March contracts that are still standing for delivery, there’ll be some great fireworks.
P.S. methinks the final number will be around 15,000!
Update for 25 Feb.
Silver’s March open interest (i.e. silver derivatives) is now down to 19,544 contracts; here’s hoping that at least 15,000 contracts remain in place for a few more days!
If silver had no uses other than sitting in a vault underground then I might agree with the argument it’s due for a correction, but it has industrial uses and actually consumed and destroyed in those processes (every ’smart’ bomb has 100 oz of silver in it, and we blew up how many hundred over the past few days in Libya?) I encourage people to short silver, it makes life interesting watching them cover while they keep calling silver’s top. I only wish I had the foresight to have been buying physical over the past 20 years, I would have over $1 million in my retirement fund instead of $100,000.