Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How Low Can Silver Go?

Commodities / Gold and Silver 2011 May 05, 2011 - 01:22 AM GMT

By: Jason_Hamlin


Best Financial Markets Analysis ArticleSilver has posted an incredible first four months of the year, appreciating by over 60%! But we all know the adage that nothing goes up forever and silver proved it true by finally hitting a wall and correcting by 15% in just three days. The metal continued declining this morning and just tested the psychologically important $40 level.

This correction has been blamed on the COMEX margin increases, reclassification of delivery-eligible silver, bank manipulation, Bin Laden’s death and a whole host of other factors. These certainly seemed to play some part, but I think the simpler explanation is good old-fashioned profit taking. Silver finally matched its all-time high and was nearing $50 after a parabolic-like move, so plenty of investors that bought in around $20 or less likely decided it was a good time to take some profits off the table.

The big question now becomes “How Low Can Silver Go?” The fundamental situation… supply shortages, surging investment demand and central bank buying, sustained record low interest rates, out-of-control spending, record deficits, debts and the U.S. dollar falling off a cliff, all seem to suggest that the correction will be short-lived. None of these situations have materially improved in the past week and I don’t see any of them miraculously turning the corner anytime soon. The FED might slowly raise rates later this year, but they would have to rise to above the true inflation rate to have any serious impact on gold and silver. Neither political party seems serious about addressing the budget crisis or reducing our bloated military budget. They continue to bicker about cutting a few million here or there from NPR or Planned Parenthood for ideological reasons. Whether they cut $30 Billion or $38 Billion, it is still just a fraction of our annual budget deficit of $1.5 Trillion.

Despite the strong fundamentals, the technical chart shows plenty of room for more downside. Furthermore, the last bounce was not nearly as robust or convincing as previous ones. Silver fell through its 20-day moving average on Tuesday and the drop below $40 will test just how many weak hands are holding silver this time around. If enough buyers emerge, $40 could hold, but any panic selling is likely to force the price down to support at the 50-day moving average of $38.67. I find it likely that this support will hold, but further down we see support at the $36 level, which was a zone of previous resistance and consolidation. Below that is the 100-day moving average of $34, which has not been breached since the Summer of 2010. I believe the likelihood of silver falling below this level and testing its 200-day moving average of $28 is less than 5%.

It is worth pointing out that both the RSI and MACD have yet to reach oversold territory, despite the 15% dip. They are likely to begin flashing oversold on a dip below the 50-day moving average of $38.67, which I believe is the lowest silver will go during this correction.

Remember that as difficult as it can be to stomach in the short term, these corrections are normal and healthy parts of any bull market. The medium and long-term picture is still intact and I remain convinced that we will see $1800 gold and $60+ silver by year end. We are nowhere near a top or end of this bull market as some analysts and reporters are shouting.

The inflation-adjusted highs are still a significant distance away and the fundamental conditions that created the spike in 1980 are much worse today. Depending on which inflation statistics you want to use, gold still needs to climb to somewhere between $2,400 and $5,000 and silver needs to hit a minimum of $140 and could climb as high as $500 by some estimates. This short term correction will once again prove to be the same thing every other correction has been in the past ten years — a buying opportunity.

Mining stocks have been significantly under-performing the metals thus far in 2011. However, I believe they will play catch up during the back half of the year. If you would like to see which stocks I am holding in the Gold Stock Bull portfolio, get the monthly newsletter and receive email alerts whenever I am buying the dip or taking profits off the table, sign up for the Premium Membership at just $35/month.

By Jason Hamlin

Jason Hamlin is the founder of Gold Stock Bull and publishes a monthly contrarian newsletter that contains in-depth research into the markets with a focus on finding undervalued gold and silver mining companies. The Premium Membership includes the newsletter, real-time access to the model portfolio and email trade alerts whenever Jason is buying or selling. You can try it for just $35/month by clicking here.

Copyright © 2011 Gold Stock Bull - All Rights Reserved

All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in