Silver Bounces! Weekly Silver Recap

So after falling 23% in just under 6 weeks, silver bottomed out Mon morning and rallied ever since, gaining 6.2% on the week to close at a still very low $13.43, up from a low of $12.50 early Monday. Check the chart below to see the 6 month picture. For a 10 year view, click this link. A rather steep uptrend from the Fall 08 lows to the April $12 lows was broken on this latest sell-off, but in the big picture, it looks like the uptrend since those ridiculous lows ($8.75) 9 months ago is very much in tact technically.

As for the fundamentals, I’ll just point out the following: In Mar 08 after Bear Stearns went under, silver was $20/oz. Since then, just multiply the Bear debacle by 50 to get a picture of what’s happened since. Meanwhile, most betting men would have assumed continued strength in the shiny white metal given the financial situation, but rather, it is down over 30% almost 18 months later. Seemingly on sale…

Silver:Gold Ratio

From under 61 on June 2nd, the ratio shot up to 72 a week ago, before finally retreating back under 70 by Friday 7/17. This 20% rally in the ratio certainly surprised me, and I expect it to at least fall to the mid-low 60s, if not much lower over the long haul.

Geologists estimate silver to gold inside the earth’s crust is 17.5 to 1. Let’s be conservative and double that to 34. Now consider above ground stockpiles. Silver stockpiles have been drained greatly the last 40 – 50 years, while almost all new gold that is mined is still around somewhere – on a neck, in a vault, etc… Silver is a crucial metal in technology, which is why the stocks have been drained lately. Gold is still basically for investment and jewelry.

So take that 34 ratio, and drop it to 30 to account for the usage situation with the two metals. Silver would have to jump 132% to be fairly priced at a 30:1 ratio, and even that price of $31.25/oz. is way too low, looking at these extremely conservative assumptions. Of course, in 1980/81 the ratio fell under 20 and bottomed out at 16.

The other markets have been truly volatile since Memorial Day. The 10 yr bond yield alone has had weeks of +11.2%, -7.4%, -6.0%, and finally up 10.9% for the week just ended. The S&P rallied 6.9% last week, while oil finally bounced from its rather brutal 20% correction from its 6/11 highs of $73. Black gold bounced 5.8% last week, finding support just under $60.

Amazingly, the crucial market in all of this, the dollar, has been the least volatile of them all. Since Memorial Day it’s never closed above 81, while only once closing under 79 (6/2).

I suspect that this consolidation will eventually break to the downside. There are just way too many fundamental factors that are weighing on our currency right now. The heaviest two are the many new Chinese Yuan currency swap agreements, and US Treasury issuance.

Markets in total this week:

Oil – Up 5.8% to $63.34, finally bouncing from recent 20% drop.

S&P 500 – launched 6.9% this week to close at 940. Reflation/inflation? After all, everyone’s pretty wise to the Green Shoots b/s con game by now – it’s not rallying on economic health. And don’t give me the bank profits as proof of brighter days ahead.

Silver – + 6.2% to $13.43. Ratio drops from 72 to 69.8.

Gold – + 2.8% to $937.7

Govt 10 Yr Bond – Yield jumps from 3.29 to 3.65 this week, up 10.9%!!

Govt 30 Yr Bond – Up a strong 7.9% to 4.53 from 4.20.

$Dollar$ Index – Down just .8% to 79.49. If it closes for a couple days in the 78’s, then drifts below…get out of the way.

Tags: silver bounces

Volatility Subsides: Weekly Silver Recap

Volatility has left the silver market, save for a 5% plunge on Monday that eventually found support at the $14 level. Silver closed $14.22 on Friday, down 4.1% on the week. Gold fared better than the official metal of the Olympic runner-up, losing only a half a percent in closing the week at $934.30 and bumping the Silver:Gold Ratio up from 63.3 last week to close 65.7 this week.

In the big picture, despite silver’s $2 drop from its recent 10 month highs, it still remains up 31.8% on the year, while the ratio has dropped over 18% from 80 on Jan 1 to under 66 currently. The uptrend since Fall 08 lows remains, and the $14 level looks like good support at this point, certainly making sense when you look at this chart below. A definitive violation would be very surprising and worrisome (short term) for silver bulls, but can’t be ruled out.

SILVER 6 MONTHS thru 6/19/09

The metals markets are taking their cue from the dollar these days, as silver’s 10 month high on 6/2/09 was the same day the dollar hit its 9 month lows. Also, silver’s bloody Monday was the same day the dollar had its best day of the week. Right now the dollar has a magnet to the 80 level on the dollar index, closing between 80 & 81 all week.

Govt long bonds have also stabilized, with the 10 yr now yielding 3.79%, exactly where it started the week, while the 30 yr yield dropped 11 basis points to 4.52%. Stop and think about those yields for a bit, on an absolute basis, in light of the current economic situation and historic govt bond yields.

• Continued record issuance of govt debt, roughly 4X greater than just last year.
• Foreign creditors not only publicly stating their concerns about treasury issuance and dollar stability, but also actively pursuing and closing deals to bypass the dollar in international commodity agreements.
• Reduction of treasury purchases by foreigners.
• Yields that are still over 200 basis points lower than the average during the Clinton years, when by comparison the Federal Govt was downright frugal!

Commentary

Govt debt at this point is a massive Ponzi scheme and foreigners are getting wise to it. While borrowing record amounts, creating record deficits, and dominating the American economy, the govt is also enacting programs and policies that guarantee no healthy recovery by which to raise revenues through a larger tax base – the massive borrowing will continue ad infinitum (they hope). The govt has no faith in true free market capitalism; it feels it is the answer to all of our problems, denying the reality of its own culpability. We are not in control of our destiny; debt makes slaves of governments, too.

Other Markets of Note:

Oil – finally closed down for the week, off 3.2% to 69.55, after rallying 17.1% the prior 3 weeks.

S&P 500 – also took a breather after a healthy run, down 2.6% on the week to 921after rallying 6.7% from 887 to 946 the prior 3 weeks.

The Noisy Micro Price Action, Silver Technicals

So last week in this column we looked at the possibility of silver finally entering a trading range after a straight up May, and so far that’s exactly what’s happened. Silver hasn’t yet probed the $14.50 support area, but it has consolidated and bounced around 10-12% below its recent highs.

Of course, throughout history silver has proven to be quite volatile, and it’s actually scary to think of sizable $$$ coming into silver in a big way – how volatile and bullish the action would be. What would you rather own, a US Govt bond or the most important metal for the future of technology and advancement of science, that doubles as real money? I know my answer.

The key levels to watch in silver right now remain 14.50 and 16.50. Any meaningful break above or below those levels and watch out for a major, volatile move. Everything in between is the noisy micro price action that leaves hints as to which way the chart is going to go…watch it closely.

Volatility Reigns: Weekly Silver Recap

Silver traded above $16.20 on Tuesday this week, but that was as high as it could go before falling the next day to the 15.30 level, rocketing back to 15.90, and then crashing Friday under 15.20, before closing at $15.28, down 3.1% for the week.  Yes, it is getting volatile after the strong 5 week advance since late April.  Gold fell from $980 to $956 for the week, putting the Silver:Gold Ratio at 62.6, up a half point on the week after getting below 61 on Tues.

The argument that silver has started a basing period is still valid with this price action, but with these turbulent economic times, any major fundamental development could completely take over the price action, driving silver right through support/resistance levels.  Of course, looking at the fundamental background – money printing, higher interest rates, record deficit spending, record investment demand, continued excellence as an industrial and medicinal metal, along with flat to down production – that move is more likely to be up than down, I would think.

The real volatility this week was in govt long bonds, where yields jumped around all over the place in the continued bursting of the treasury bubble.  In the last two weeks, the 10 yr yield has moved at least 15 basis points in 5 of the 9 trading sessions, remarkable volatility.  10 Yr yields jumped from 3.72% to 3.86% on Friday, closing up 11.2% from last week’s close and now up 72% on the year since closing 2008 at 2.24%. 

The Fed is actively attempting, and failing, to artificially suppress long rates.  All short term rates are near zero, and we send Tiny Tim to beg the Chinese to continue to buy the U.S.’s latest version of toxic debt – its own (‘of course we’ll repay you, we can always print more dollars!’).  These are the acts of a desperate nation still scrambling for quick fix solutions to major fundamental problems, and completely disregarding fiscal responsibility.

Other Markets of Note:

Govt Bonds – 30 Yr yields jumped from 4.34 to 4.66% this week, a nice 7.3% move, while the aforementioned 10 yr went from 3.47 to 3.86%.  Think how far yields still have to go to accurate reflect their risk…it could get ugly.

$Dollar$ – the dollar index stayed with its inverse bond market theme, rallying for the week 1.8% to close 80.7.  On Tues it traded under 78.50.

Oil – After bursting 8% last week, black gold rallied another 4% this week to close at $68.95, officially double its late 08 and early 09 lows…tell me more about deflation please?  It’s inflation in necessities, and deflation in non-essentials.

S & P 500 – amazingly, the S&P was up exactly 3.6% for the 2^nd week in a row.  Great news that only 345,000 jobs were lost last month, and unemployment is now at 26 year highs of 9.4%…and those unemployment numbers are radically understated as well. Check http://www.shadowstats.com/ for the true numbers.

Silver: Technically Speaking

Is silver ready for a trading range after a virtually straight up 5 week advance? Silver has rallied from $12 to $16 since late April, and looks like it could be ready to possibly make a base up here with $14.50 as the low and $16.50 as the high. June 3^rd saw silver experience its worst day since April, dropping from an overnight Asian market high of $16.20 to $15.30 towards the end of the NY trading session hours later.

The sharp uptrend is in tact if silver holds above the $15.20 area in the next few days, and then continues an advance back towards $16, otherwise, it might be headed for a perfectly healthy basing session as it braces for its eventual march to the Mar 08 highs above $20…we think…and hope. Watch it closely these next few days for more clues.

Silver Chart, Daily, 6 Months

Tags: silver, technical analysis, trading

Bloomberg Notices Silver:Gold Ratio

Bloomberg today (June 3, 2009) has published an article by Jason Scott that specifically points to the massive drop in the silver:gold ratio since it peaked above 84 in early October to the current 61 area. It’s not often that the mainstream press mentions this ratio, and it bodes well for the future spreading of the silver story.

Of course, when the ratio has gone from over 70 to 61 in around a month’s time, and silver is now up almost 50% on the year (compared to gold’s 14%), the financial media are supposed to notice these things. Let’s see how long it takes CNBC to pick up on the news.

Meanwhile on June 2nd, a Silverseek.com article quoted British scientist Valerie Edward Jones on how “advances in technology, particularly nanotechnology, are allowing scientists to increasingly apply silver’s benefits in more areas”, including “healthcare and hygiene”. She then pointed out its use in deodorants in Europe.

Tags: bloomer news, silver gold ratio, Silver News, silver's benefit

Best Month in 22 Years: Weekly Silver Recap

What a week for the shiny metal, closing its best month in 22 years! Silver ended May at $15.77, up 24.9% from its April close, and up 7.2% for the week. Gold was up 2.4% this last week and 10.9% in May closing $980. As these numbers attest, the Silver:Gold Ratio continued to drop during May and last week, and now stands at 62.1. It was at 80.6 to open 2009. Despite this 22.8% fall, the ratio still greatly exceeds its 2006 through first half of 2008 average of 53.

On a technical basis, the weekly move was not surprising, as late the week before it broke through the overhead resistance in the $14.50 area. There’s really not much resistance until the $16 – 16.50 area. Silver hadn’t been above $15 since Aug 08, when it fell from $17.50 to $13.76, on its way to sub $9 before bottoming out – easily one of the quickest, most vicious bear markets I’ve ever seen.

Reflecting upon the big picture with silver’s performance, it’s not surprising that it has outperformed gold so thoroughly this year. Gold is roughly 15% above its nominal highs of $850 almost 30 years ago, while silver is almost 70% below its 1980 highs. Even if you assume the Hunt’s activities artificially boosted the silver price by 100%, going from $25 to $50, then silver still resides nearly 40% under a $25 high.

This is while industry has continued to find new uses for the miracle metal, above ground stocks have shrunk sharply over the decades, and now new technologies like nanotechnology promise even more uses. Do I even need to mention the U.S.’s and most other governments’ recklessly irresponsible fiscal policies that silver protects against?

In the broader picture, and related to worldwide government policies, silver’s strength was part of a strong week for commodities (oil up over 8%), as more investors are following China’s lead by exchanging fiat currencies for tangible, wealth-protecting assets.

Other Markets of Note:

Govt Bonds – both the 10 year and 30 year were hammered on Wednesday, but staged a baffling rally on Friday (yields dropping roughly 20 basis points), for the week finishing up .02% at 3.47% (10YR) and down .05% at 4.34% (30YR).

$Dollar$ – the dollar index actually rallied from 80 to 80.5 on Wed while bonds were being abused, but fell sharply during the bond rally Fri, from 80.5 to close 79.23. As recently as April the index was 87. Dollar:Euro back over $1.41 now.

Oil – at 66.31 now, almost double its winter 08 lows.

S & P 500 – up 3.6% on the week to 919. GM bankruptcy, North Korea nukes, and continued poor economic numbers don’t scare equities, or is it a reflation (inflation) based rally?