The CPM Silver Yearbook 2008 is out. Here are some highlights, including this important observation:
Investors are forecast to be net buyers of 74.9 million ounces of silver this year. “At relatively lower prices, silver could seem more attractive to investors. Going forward this could result in a decline of the gold/silver ratio to lower levels [my emphasis]“
The gold/silver ratio is 52.69 right now. Look for this to come down over time.
I’m going to do something that I hope serves as an educational exercise. I’m going to analyze the silver ETF (SLV) from a point and figure perspective. First, the daily chart:
The first thing you should notice is that silver is in a secular uptrend. Also, notice that SLV is sitting right on its bullish trendline (blue line). And, in addition to the trendline support, there is some more support that can be identified. If you look to the left of the chart you see the last column of Os ended at the 162 box. It means that SLV previously found good demand at that level.
On the other hand, the last signal was a bearish one: a triple bottom breakdown on April 21. And the bearish price objective is at 144.
So if SLV holds support by going on offense with a new column of Xs, the secular uptrend may resume. However, if it breaks through support — especially if it trades down to the 160 box — the trend has changed to the downside.
Now let’s take the time frame down one level and look at at 60-minute chart:
I’ve substituted 45-degree angle trendlines with 3 and 5-column moving averages. SLV is clearly in a downtrend using this time frame with a price objective of 158.40. Someone looking to buy silver may play it this way: buy the first double top breakout after the shorter moving average (blue line) moves above the longer moving average. (red line).
But, right now, a buyer would want to avoid SLV. I’ll keep this updated and we’ll see how it goes.
A very interesting article by Steve Saville. He offers a great explanation of how credit expansion and contraction affects money supply and why the recent surge in money supply is a false signal. He concludes this about inflation:
…our assessment is that the current US inflation (money-supply growth) rate is 3-6%. Inflation is still occurring, but at a much slower rate than it was during the early years of this decade.
However, he also concludes that commodity prices are still very low in real terms and that the decline in the rate of inflation will bottom over the next few months (if it hasn’t already done so) and begin an upward trend.
Good stuff.
Bob Kirtley takes a look at why, lately, silver stocks haven’t provided the traditional leverage over silver. He offers that the culprits may be the silver ETFs, which may have been attracting capital that would otherwise flow into silver stocks. It’s an interesting point and worth considering.
This was reported by Bloomberg on Thursday:
Platinum fell in New York after Mitsui Mining & Smelting Co. reported developing a silver-based diesel exhaust catalyst, replacing the more expensive metal. Palladium also declined.
Mitsui, a partner in Japan’s biggest copper smelter, plans to start selling the silver-based devices in Japan, the U.S. and Europe in 2012, according to a statement yesterday. Platinum has jumped 54 percent in the past year, partly on expectations that demand for automotive catalysts will rise as governments impose tougher pollution controls.
As the demand for silver increases, the obvious question is where is the silver going to come from?
There are 4 things that David Merkel doesn’t get. I especially like No. 4:
…Financial literacy is a good thing, and most people would be better off knowing more about finances, so long as they can mix it with humility. I’m a professional, and I think humility is a key virtue in handling money.
Read the commentary on any financial blog. A sure sign of an amateur is someone lacking humility. The pros know that you fail your way to success in this business. The minute you forget that you’re heading for disaster.
Bespoke has the data on what’s been performing lately. Of course, next month the list will look different.
Jeff Kohler does a good job of walking you through the steps of how to trade breakouts. At least it’s one way to do it.
Like turning down the Beatles with this comment:
“Not to mince words, Mr. Epstein, but we don’t like your boys’ sound. Groups are out; four-piece groups with guitars particularly are finished.”
From Paul Castro:
In accordance with Dow Theory, the bear market which began in July 2007 (the last time both the Industrials and the Transports made a concurrent higher intermediate price high) has now ended. We now have a new bull market, the origins of which can be traced back to January 2008 (the last time both the Industrials and the Transports made a lower intermediate price low).
In order to confirm this new bull market, Dow Theory compels us to look for a higher intermediate low sometime into the future, i.e, a low on the Industrials and the Transports that bottoms out above the lows reached on March 10, 2008. As long as the March 10th lows are not violated, we can feel confident that a new uptrend of higher price highs and higher price lows has indeed begun.
The March 10th low for the Dow Industrials was 11731.60. For the Transports it was 4388.29
