Could silver drop to $25 an ounce and then rebound to $60?
Posted on 29 June 2011 with 11 comments from readers
The problem with trying to make market calls about a highly volatile commodity like silver is that you get it right about as many times as you get it wrong.
ArabianMoney can happily point to our prediction back in December that silver might spike to $50 early in the New Year (click here). Brilliant, we got that absolutely right. But what about our warnings last summer that silver prices might fall? Ah, well they did not and if you sold then you missed the best silver rally in 30 years.
Buy and hold
Buy and hold your poor man’s gold! That is our best advice for investment in a highly volatile commodity. Leave the trading to George Soros who also makes big mistakes from time to time. Trying to time an entry point for new silver investments is another matter.
The ArabianMoney newsletter this month (subscribe here) points to the end of July as looking like a low-point for silver, and has some interesting ideas for subscribers on how to best profit from the price hike to come. That low may be close to the current price of $34 an ounce or the $25 cited by some keen chartists and followers of the fibonacci series.
At a more fundamental level the silver price probably comes down to what happens in Greece and the eurozone over the debt crisis like everything else. If financial markets rally on another temporary solution then silver will stay up. If financial markets turn down sharply silver will probably fall harder than most, unless we have a crisis of confidence in money and that is why you should still hold silver.
$60 target
However, we still think the shiniest of metals has the brightest outlook for 2011 as we did in January (click here) and will finish the year back above the $50 spike of April and most likely north of $60 an ounce.
This confidence comes from an observation that the world’s central banks are flooding the financial markets with cash while at the same time more and more investors are noting that they cannot print silver and deciding to buy it as a hedge against monetary inflation.
At some point the purchasing of physical silver is going to overpower the obvious and blatant price fixing in the computers of the Comex in New York, and silver prices will soar to unimaginable heights.
Then we will be writing articles about the silver bubble and how long will it last and how high will it go. It could be that this summer is the type of 50 per cent correction sometimes seen in precious metals – gold prices halved in 1976 before going up eight-fold by 1980. But if so that really will be the buying opportunity of the decade.
11 Comments posted by readers:
your title is how i am reading silver, peter.
Dear Ed, your quote: “At some point the purchasing of physical silver is going to overpower the obvious and blatant price fixing in the computers of the Comex in New York, and silver prices will soar to unimaginable heights”, is bang on target.
I (and many, many others!) have being saying for a while that the blatantly ‘wrong’ price discovery mechanism at the COMEX will cease to represent the true value of physical silver (not paper) very soon.
I have given up trying to ‘guess’ this market and choose a buying in point because there is way too much manipulation, false information, and downright fraud in this market. Indeed I defy anyone to give a reasonably accurate short-term (less than a year) forecast or accurate market assesment because of all this missleading information and price fixing.
From what I can personally see with my own eyes, there has been (and continues to be) a very significant movement by small investors globally to buy ’small denomination’ bullion (ie 1 troy oz coins, rounds, and bars, and also 1kilo bricks). It can only be a matter of months before the sheer quantity of physical silver that these investors / hedgers / savers from the market force the long anticipated price divergence between the real ‘physical’ metal and the pretend ‘paper promise’ metal. Add to this the steady industrial demand (which will increase or decrease over time but will always be there) and price can only go one way and it is not down.
Silver needs to be held ‘long’ and not ’short’, and by ‘held’ I do mean that literally – it is only physical metal that will count (or indeed be worth anything at all) in the next year or so.
Don’t try and guess the market – you can’t judge a rigged table – just use these low prices to establish your own position!
Ed Note: Yes the editor I had lunch with yesteday wanted to know how best to buy and hold gold and silver personally. That really tells you all you need to know about where the money is going…
Well, here we are, the end of June, the end of QEII and the chatter on PM’s is starting again web-wide. The volatility came out of the silver market over the last month as it traded sideways in a tight range. I reentered physical mrkt yesterday at $33.44, after it fell 2.5% in a few hrs, as oil dipped to the $90 dollar range. Yesterday’s oil drop was the silver buying opportunity of the month, lasting a few hrs only.
We hear diverging points of view on the PM outlook between Faber, who says commodities will remain soft for the summer, and Sinclair who is calling for a crisis of confidence in the dollar expressing itself in higher PM’s. Jim Rickards agrees with Sinclair, saying a dollar confidence crisis is looming. I’m guessing we are going to see volatile price action in PM’s this summer. My personal bet is weighted 2/3 in favour of Faber’s overall view, ( translated by me into silver will break resistance at $31.50); and i’m 1/3 covering my ass, weighted on the chance gold will rally, and silver will not look back. But i have to add, i’m increasingly uncomfortable sitting on cash in my silver account. The summer price action of silver depends too much on Bernanke, and what he does, as well as the PIIGS crisis, and oil. Anything can happen in the ME and probably will. If the oil price heads for the moon, the guesswork on silver price direction is over. Meanwhile PM’s continue to be a gambler’s paradise.
(Now y’all may advise me again to buy and hold, because i don’t know what i am doing lol. )
37 Year Chart Says This Is The BEST Week to Buy Silver.
http://dont-tread-on.me/37-year-chart-says-this-is-the-best-week-to-buy-silver/
All currencies headed to zero!
Heard on the CBC tonight; ‘Spain, not to big to fail, too big to save’.
China has its work cut out.
The next PIIGS crisis will be more serious than Greece and it will test the Euro confidence issue. Btw, i just became aware that Landrover’s parts are made in China now (past 2 years). Maybe China will buy what’s left of Detroit, and plop it into southern Spain. Lots of empty accommodation and golf courses, ready made towns. Maybe assemble electric cars for Europe, and Africa, cheap like borscht. Put 20,000 ppl in Spain back to work, and pay them high wages. Get money circulating back into the economy through production. Germany would freak out of course. Or maybe not.
@ Ed:
Your “timing” for this commentary on silver is impeccable! Well done.
@ The Old Man:
Peter’s comment (cited above) was right on target; and your remarks were bang on target as well!
@ James M.:
I believe JPM’s dual strategy (of continuously entering massive silver shorts) is:
a) to eventually cover much of their humongous silver shorts at a lower price, and
b) to drain their ETF SLV of most physical silver, then replace it with more paper.
If that is true, then we may get another opportunity to load up the truck with more physical silver in July, as JPM tries to hit (or come close to) silver’s 200 day MA.
So let’s hope that JPM is bold enough to do that!
@ Jon:
I’ll check out your link.
Hi Obewon, glad to hear you’re in Istanbul/Constantinople. I see by looking at wiki they still have their electric trams. Darn smart.
Yes, the 200 DMA, the frequent target of bull market corrections. Well, i think that number on the chart, as of today is about 31.77. This market is breaking down, and it seems we are finally going to get that correction in gold – my call is $1,440 for mid July. There’s a DMA cross-over coming this week on the AU chart, as the 18 day falls below the 45 DMA, (probably) generating a new wave of selling. That being the case, silver following gold, can be expected to break below the 200 day MA. The moment gold appears to have corrected, silver will blast off again, is my guess. So the buy opportunity is upon us now. Its fun to make these predictions, which sometimes turn out, but buying silver at any price right now is a smart idea i feel. When its shooting the moon this fall or next spring, who will care in hindsight, whether they paid $28 or $35 this July.
Enjoy your summer!
James
Hello, James M.:
Enjoyed your most recent remarks, and I agree with your logic here, especially your coment about buying silver at almost any reasonable price during July.
I believe, you, the Ed., TheOldMan, Boatman, and I are all on the same “wavelength” in that silver is likely to exceed $50 by mid October 2011. So whether we buy it next week (maybe at 31???), or the following week (maybe at 29.5???) makes little difference.
BTW, the southwestern coast of Turkey is a great place to vacation (Izmir, Selcuk, Ephesus, Bodrum, etc.); lots of ancient Greek, Roman and Turkish history here.
1kg bar of silver AED4122 yesterday in the Dubai Gold Souk (= $34.89oz).
@ James M. @ obewon
Thanks to you both for typing my exact thoughts.
Here is a visual for those in a hurry.
http://www.stock + charts.com/def/servlet/SharpChartv05.Servlet + Driver?chart=$SILVER,uu[h,a]dahannay[de][pb100!b200!]
To make it work, copy and paste into a browser address window.
Delete the two _+_ and
The 100 dma and 200 dma define a rough buying channel.
That “rough buying channel” looks better on the Gold graph.
http://www.stock + charts.com/def/servlet/SharpChartv05.Servlet + Driver?chart=$GOLD,uu[h,a]dahannay[de][pb100!b200!]
“Delete the two _+_ and Enter”
Will Gold re-enter its channel this July or August? We shall see.