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Bullish Case for Silver and Even More Bullish Case for Silver Stocks

Commodities / Gold and Silver 2012 Nov 07, 2012 - 03:45 AM GMT

By: P_Radomski_CFA

Commodities

Best Financial Markets Analysis ArticleWe summarized our previous commentary on gold and the US Presidential Elections by stating that based on Friday's decline, it seems that the bottom in the precious metals sector might have just been reached. Based on today's rally in gold and silver, it seems that it was really the case.

Before moving on to the silver market and its technical details, let's discuss the idea of verifying if gold held in New York is as pure as it should be.


Recently, Germany's federal auditor has told the Bundesbank to do spot checks to ensure the world's second-largest gold reserves really are safe in vaults in New York, London and Paris. Germany holds much of its 3,400 tons of pure gold - worth an estimated 143 billion euros (US$187 billion) - with partner central banks abroad. There have been conspiracy theories and rumors claiming that Germany's gold bars may have been stolen or replaced.

Initially, the Bundesbank rejected the demand, arguing, "The scope of the checks that [the federal court of auditors] wants does not correspond to the usual practices among central banks. ...There are no doubts about the integrity and the reputation of these foreign depositories."

The Bundesbank has now agreed to fly 50 tons of the deposited gold from New York back to Germany every year where it will be melted down to test the overall purity before being re-cast into standard gold bars.

That sounds like a very reasonable thing to do, until you realize that it could be the best way to access otherwise virtually inaccessible gold bars. During the transport, melting and re-casting processes the overall purity could drop due to "technical reasons". Of course there is no proof that this would be used by the Powers That Be...

Some two-thirds of Germany's gold reserves, worth $190 billion, are being kept in the vaults of the U.S. Federal Reserve, the Bank of France and the Bank of England since post-World War II, when Germany was concerned about a possible land war with the former Soviet Bloc.

One wonders if Germany's move to repatriate its gold reserves might make the financial markets even more nervous about the fate of the Euro. Is the Bundesbank telling us what we already know - that gold and silver are real money?

You do have some physical gold and silver as suggested in our portfolio structure report, right?

Let's now move on to today's technical part, which is dedicated entirely to silver and silver mining stocks, as we believe that these markets (especially the latter) provide exceptional investment opportunities - we have already mentioned that in the last week's essay. We'll start with the SLV ETF short-term chart (charts courtesy by http://stockcharts.com.)

SLV (iShares Silver Trust NYSE

In the short-term SLV ETF chart, we have illustrated a declining trend channel. The declining resistance line has not been broken last week, and the target area remains unchanged. There is one significant difference, however.

We have fine-tuned the cyclical turning points to better correspond to recent tops and bottoms. It seems likely that this will improve the accuracy of future market calls and we should begin to see the fruits of our labor in a week or so, as this is where the next cyclical turning point is located.

So, have we just seen a bottom in silver? Most likely yes. Silver was about to move higher due to the cyclical turning point. It also reached our target area, so we believe it's now ready to rally once again.

Now, let's have a look at the white metal from the non-USD perspective to see whether the significant drop in silver's price that took place on Friday is visible in other currencies than the U.S. dollar. It is a non-USD silver chart, meaning a weighted average of silver priced in different currencies, other than the USD - the weights are as in the USD Index, so this charts is similar to the one featuring silver priced in euro.

$SILVER:UDN (Silver (EOD)/PS DB US$ Bearish) CME/NYSE

On the above chart, the final bottom also seems to have almost or already been reached. The implications are bullish.

While the decline in the white metal's price was significant indeed, we would like to draw your attention to the silver mining stocks chart, where we'll see that the corresponding decline was not at all that big.

SIL (Global X Silver Miners) NYSE

Today we again include the long-term Global X Silver Miners chart. The rally seen last Wednesday was truly spectacular and so was the lack of decline on Thursday. Moreover, the drop in price on Friday was nowhere near the magnitude of the corresponding move in the underlying metal! This is an important achievement. The silver miners held their gains, being pretty much flat on Thursday when gold miners declined. There is exceptional strength in the silver stocks right now.

Perhaps we are close to the last call for purchasing silver stocks before the huge rally truly begins. While their price levels could move down a bit if gold and silver decline, it will probably be to a minimal degree. It seems that the rally will be significant and it appears too risky to wait for slightly lower prices.

Summing up, the white metal seems to have already bottomed and the rally seems to be just around the corner. Silver mining stocks continue to show exceptional strength and the outlook remains bullish.

In order to make sure that you won’t miss any of our free essays, we strongly suggest that you sign up for our gold & silver investment mailing list. Sign up today and you’ll also receive 7 days of access to our premium updates, market alerts, premium charts and tools. You’ll also receive 12 best practice e-mails as a starting bonus.

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

P. Radomski
Editor
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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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