Silver has Turned the Corner with the Resumption of the Bull Market
Commodities / Gold & Silver May 31, 2007 - 05:28 PMBy: Peter_Degraaf
The fundamental outlook for silver continues to be extremely bullish!
In 2003 I remember reading an article by Douglas Kanarowski titled: “ 70 Approaching Forces for Higher Silver prices ”. If Mr. Kanarowski were to re-write the article today, he could add several more reasons! [*]
Silver is being utilized more and more in nanotechnology applications. According to a recent report from NanoMarkets, a leading industry analyst firm based in California, the market for silver conductive inks is expected to rise from the current 176 million dollars per annum to 1.2 billion dollars during next 7 years. A seven-fold increase!
In addition silver is the material of choice for RFID antennas and the printing of RFID tags to be used on an ever-increasing number of items, including food packages.
To read key findings from the report visit www.nanomarkets.net
When I first became interested in silver, during the late 1950's, the US government had a stockpile of 2.5 billion ounces of silver. The amazing fact is that all of this silver has now been used up. It's gone forever! The majority of uses for silver does not allow for recovery, since only small portions are being used. Computers, cell phones, T.V.s, fridges, batteries, weapons, and now inks and RFID applications, each use a tiny amount. However, multiplied by large quantities, this ever increasing use is causing a constant drain on the remaining silver stocks.
Featured is the daily bar chart for the SLV silver unit. As I pointed out in a previous article, a break-out above the down-sloping resistance line (thin green line on this chart), would be the first sign that the precious metals had bottomed. The action in the SLV today confirms the break-out that occurred two days ago (blue arrow).
The rising channel is well defined, the two moving averages are in positive alignment, and the supporting indicators (RSI, MACD and Histograms) are all positive.
The green arrows point to the targets for this move:
Featured is the index that compares the POS to the POG. One of the most reliable indicators to determine whether silver and gold are in bullish mode is to look at this index. When it is rising, the PM are bullish, when it is falling the PM are in a corrective phase. The green arrows point to an upside breakout in the index, supported by the other indicators. The index closed Wednesday evening above the 50DMA (blue line) once again, for the first time in three months. That is a positive development for the metals.
Featured is the XAU index of mining stocks. The blue arrows point to ‘upside reversals', sometimes called ‘climaxes'. It is quite obvious, by observing past performance after one of these UR's that odds are very good we will see at least two weeks of positive action.
At the time of writing this article, the XAU index has moved back up above the 200DMA (red line on chart), while the 50DMA is in positive alignment to the 200DMA.
Most analysts look for an up-trend in the mining stocks before they become bullish on the metals, here is the first such signal in the past two months.
Summary: Whenever bullish fundamentals harmonize with positive chart patterns, the trading traffic becomes ‘one way'.
In gold trading, the net commercial short position as of May 22 shows 124,000 net short positions, compared to 173,000 two weeks earlier.
Such a large drawdown is a positive factor for the metals.
A note to those of you who still follow the Elliott wave guru's. Elliott waves work best in retrospect. Like looking in a rear view mirror. One very prominent guru for the longest time kept warning us that gold was going to $250 before it would go up.
Recently another Elliott wave student is calling for gold to drop to $500/oz. With numerous metals like nickel, moly, copper, lead, zinc, uranium as well as oil and gas all in multi-year up-trends, don't you wonder ‘what are these guys smoking?
By Peter Degraaf.
Peter Degraaf is an online stock trader with over 50 years of metals trading experience. He sends out a weekly E-mail to his many subscribers. For a 60 day free trial, contact him at ITISWELL@COGECO.CA
DISCLAIMER: Please do your own due diligence. I am NOT responsible for your trading decisions.
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