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Is Silver Going Lower?

By: Ryan Jordan | Wednesday, January 15, 2014

In both gold and silver, the New Year brings technical readings as oversold as those seen in the 1980-1982 bear market. Some technicians claim that they have never seen such oversold conditions in the mining equities -- a pretty strong statement when you think about past bear markets in the mining stocks. In the gold market, ETF holdings, by some measures, are as low as early 2008 -- before the financial crisis. Speculative positions on electronic futures platforms are also at lows not seen in over eight years. From the perspective of Wall Street, hedge funds, and other western commercial banks, it really looks as though the 2008 crisis is a distant memory. We can all just go back to making fortunes in the conventional stock markets and forget about the need for those barbarous, inconvenient, bulky hedges like gold and silver.

Yes, complacency reigns, as more and more people focus on the recovery (at least according to official data) here at home in the United States. This complacency has likewise triggered a parabolic move in the conventional stock market -- although I admit that parabolic moves can last longer than anyone thinks possible. Yes, there is a longer term question as to whether or not we are seeing a secular bear market in gold and silver, coupled with a secular bull market in equities (think 1980s and 1990s). Still, the conventional stock market is seeing overbought technical readings consistent with prior market peaks (whether or not the longer term picture remains positive for equities.) For the intermediate term, there is no question in my mind that if you are a seller of gold and silver here you are selling at or near the bottom- while if you are a buyer of stocks you are buying at or near the top. The fact that the increase in the S&P 500 last year almost exactly mirrored the decline seen in the gold market may also tell you something about the irrational hopes of those who are mindlessly, breathlessly simply chasing the most recent, hottest investment trend. You would do well to try to buck that trend, even if it takes time for you to be rewarded.

The swing in sentiment towards deeply bearish expectations for the precious metals is further seen in 2014 forecasts for the metal released by major banking firms like HSBC, Deutsche Bank, or Societe Generale. From what I have seen coming from analysts, none are expecting an average silver price of much above 20 dollars (and many think gold will actually drop to below 1100.) Of course, these kinds of predictions should be read as a contrarian indicator. Looking at outlook coverage from the major banks, the comparisons to the start of 2013 are striking. In spite of what some may now be saying -- none of the major analysts saw the 2013 precious metals crash coming. Now, in 2014, they are back to their old ways of predicting ever lower gold and silver prices. Sound like a reason to bail on the metals?

Then there is the issue of Chinese demand (particularly for gold.) It seems that few outside the country take seriously the idea that this market might be able to absorb an increasing amount of physical precious metal. A lot of commentary that I read seems to treat China's record 2013 as a one-off event, an aberration. Many analysts seem to forget that when one billion people are being told by their government to acquire real physical metal, that this fact alone could lead to one nation absorbing all known above ground surpluses of a metal gold or silver in relatively short order.

I have already commented on the disconnect between western financial speculators who only see precious metals like silver as a financial asset, and those in the East (and sometimes elsewhere) who view precious metals as a real asset. As speculators continue to chase western stock markets ever higher -- and try to short the daylights out of gold and silver -- it should be remembered how potentially powerful a development like Chinese demand is. Western hotshot speculators with their algorithms might eventually have to respect real demand for real metal.

And so as 2014 dawns, we are faced with the same questions regarding the future of precious metals that confronted us in 2013. Are western speculators capable of dumping more precious metals? Will gold and silver continue to break lower if an index like the S&P continues its march higher? Was the white-hot physical demand for coins and bars seen in 2013 really just a one-off event, the last hurrah for a dead precious metals bull? I will leave it for you to further decide if the fundamentals that got us to 1900 dollar gold and 48 dollar silver are no longer in place, or if these fundamentals have fully expressed themselves in precious metals prices.

But I want to make one point clear. The last time that the precious metals sector was as oversold as the general equity market was overbought was around the year 2000.

And I think you know how that turned out.

 

Author: Ryan Jordan

Ryan Jordan
Silver News Blog

Ryan Jordan

Ryan Jordan has been blogging about the precious metals since 2010. However, his interest in the precious metals markets spans nearly 20 years as both a coin collector and private trader. Ryan believes there is a lack of serious discussion of how undervalued precious metals like silver are, and he aims to explain the many reasons why people should take silver investing seriously without relying on hype, sensationalism, or scare-tactics. Ryan Jordan recognizes that assets like silver serve a dual function: one, as a real asset that can provide portfolio insurance as a non- correlated investment, and two, silver can appreciate significantly in a short period of time. Silver could be the best performing asset you could own, with or without a significant crash in the dollar, or other financial mishap. Ryan Jordan's articles have appeared at financialsense.com, gold-eagle.com, investing.com, jessescrossroadscafe.com, silverbearcafe.com, silverstrategies.com, wallstreetformainstreet.com and numerous other sites.

Ryan Jordan believes a historical perspective is absolutely essential for anyone trying to navigate today's financial markets. It is this unique historical perspective that he tries to work into his analysis of the silver market. Ryan received a B.A in History from the University of California- Los Angeles in 1998, a M.A. in History from Princeton University in 2001, and the Ph.D in History from Princeton University in 2004. His professional research involves the history of social movements, religion, and freedom of speech in American history. His two most recent academic books include: Slavery and the Meetinghouse: The Quakers and the Abolitionist Dilemma (1820-1865) and Church, State ,and Race: The Discourse of American Religious Liberty (1750-1900). As a peer-reviewed historian, his articles have appeared in The Journal of the Early Republic and Civil War History. Ryan has taught US history at all levels, ranging from undergraduate to graduate students, at Princeton University, Lafayette College, the University of California-San Diego, Mesa College and Palomar College. Currently he teaches at the University of San Diego and National University, in La Jolla, CA.

Copyright © 2013-2014 Ryan Jordan