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Gold, Gold, Gold… What About Silver?

Commodities / Gold and Silver 2011 Oct 14, 2011 - 12:17 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleNo good news to deliver so far this year on the eurozone. Just this week Slovakia’s government became the first in the eurozone to fall over opposition of bailing out indebted economies after the country’s parliament voted down approval for enhancing the zone’s rescue fund. Also this week, Jean Claude Trichet, European Central Bank President, warned that Europe’s financial crisis has reached “a systemic dimension.” Greece has continued to dominate the headlines and is facing a fifth successive year of recession and a possible sovereign default.


Italy, Spain, Portugal, Ireland and even France have seen their share of headlines. Over the course of the year we have seen several instances where bad news about the euro boosted gold prices. Sovereign balance sheets resemble an overweight diabetic on the verge of a heart attack, wrote Pimco’s Bill Gross in his recent letter to investors.

At the beginning of the year many investors were of the point of view that after years of delivering gains, bonds might not be such a great investment idea for 2011 since there is a distinct risk that long-term interest rates might rise, which would spell trouble for bondholders. They were wrong, but they were in good company. The person who took the biggest hit for making the wrong call on bonds is the world’s greatest bond trader, Pimco’s Bill Gross, who advocated dumping government debt because of low yields. Instead, investors have been pouring their money into U.S. Treasuries all year as a safe haven. Due to Pimco's wrong-way bet, the once leading bond fund is up just 1% this year, trailing the returns of a whopping 84% of its peers. Recently Bill Gross has made a U-turn and has placed a big bet on lower long-term interest rates.

Housing is a key driver of expansion during economic recovery but in January we thought that it looked like home building will remain in a depression with a huge backlog of unsold and vacant homes. Foreclosures will continue with yet more houses dumped into a weak market. That has proved to be the case so far this year. The Standard & Poor’s/Case-Shiller 20-city index of prices has fallen back to where it was in 2003. Housing prices in Phoenix are at 2000 levels, and Las Vegas at 1999 levels. Lower prices have made homes more affordable than they’ve been in a generation. But mostly it’s still a vicious cycle of foreclosures and falling prices. There are still many people who have negative equity — they owe more on their mortgages than their homes are worth-- so that millions of more foreclosures are still in the pipelines.

Recently, there has been much talk about where gold is going now. This have pushed silver a little bit to the side, which we don’t think is quite fair. Because of that, we devote our today analysis solely to the white metal. We will start the technical part of this essay with the analysis of the silver long-term chart (charts courtesy by http://stockcharts.com.)

In the chart (if you’re reading this essay on SunhineProfits.com, you can click the above silver chart to enlarge), very little change was seen this week. Silver’s price moved to the 38.2% Fibonacci retracement level based on the 2002–2011 rally. Silver’s price pulled back after moving above this level. This is likely insignificant and nothing more than a verification of a move back above the 38.2% level. Such price action is not unusual.

In the short-term SLV ETF chart this week, we see a move of interest as silver’s price declined on low volume indicating a period of consolidation. The price level is now close to the 20-day moving average and in the past, such moves following an early part of the rally have typically been meant a reversal to the upside after the bottom was (shortly) reached.

Thursday’s price decline is not really of concern, and the situation is not bearish at this time.

In the silver to gold ratio this week, we see a bottom developed after the rising support line was reached. Thursday’s close was just under .02 and it appears that a rally from here is likely. The target level is around .022. If gold’s price moves sharply higher, silver is likely to increase to a greater extent on a percentage basis.

Summing up, the situation remains positive for silver and the same can be said about gold.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

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    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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