Silver Market Update
Originally published December 23rd, 2008.
Although silver's gains on the recent dollar plunge were relatively modest they were nevertheless technically very significant as they have resulted in it staging a clear breakout from the severe downtrend in force from July, and have thus set the stage for much greater gains in the future. Before going further it should be stated that much of what has been written and highlighted in the Gold Market update applies equally well to silver, and silver investors should therefore refer to the latest Gold Market update for this infortmation.
On the 1-year chart we can see the clear breakout from the downtrend, and how, coming after a period of basing that extends back to early October, it has set silver up for a resurgence. There are various bullish factors evident. The breakout has also taken the price clear above the 50-day moving average for the first time since July and this indicator is set to turn up shortly. Note the very large gap between this indicator and the 200-day moving average, showing that silver is still deeply oversold on an intermediate basis, and thus has plenty of leeway for a strong rally. Also of interest is the rising trend of the MACD indicator at the bottom of the chart, which shows that the tide is turning and momentum is reversing to the upside. Currently silver is reacted back following the breakout, which is a perfectly normal response to the dollar's rebound following its plunge. The dollar's savage plunge took it back to strong support just above its 200-day moving average, where it was entitled to bounce, but this currency is on the fast track to banana republic status, being destroyed by a combination of zero interest rates and ongoing massive increases in the money supply, a situation made even worse by the Fed now issuing its own debt to pay its debts, which is outright fraud that will go down like a lead balloon internationally. Therefore THIS MINOR PULLBACK IS OFFERING PROSPECTIVE SILVER INVESTORS ONE OF THE GREATEST OPPORTUNITIES OF OUR TIME - and don't forget, what we are looking at here is the paper Comex price. All the while supplies of physical silver are drying up. Coins and small bar silver are almost impossible to obtain, and generally you can only get them by paying a hefty premium. The next wave of physical tightening is the accelerating depletion of Comex warehouse stocks as savvy investors DEMAND near contract delivery. If this continues, and it looks set to with the world financial system rapidly coming apart, then the highly leveraged Comex is going to suddenly find the cupboard bare, and a mad scramble for physical will ensue to meet contract obligations that will send silver prices through the roof. There is thought to be a considerable risk that the Comex will default and if it does not honor its commitments it will die as first a kerb or black market springs up to be followed by the establishment of a new silver exchange in another country that is prepared to honor its commitments. Gold is expected to spike dramatically before much longer for the very same reason, but the much more sensitive and volatile silver market can be expected to go ballistic. We have stated for years that paper gold and silver prices MUST respond once the demand for physical metal passes the point where all the slack is taken up. We are thought to be very close to that point now. All of this, incidentally, is the reason why a raft of the best silver stocks have been recommended recently on the site, which have been and still are at crazy cheap prices.
A Happy Christmas and New Year 2009 to all readers.