Silver Lining, Debt Ceiling & Quant Easing

by Ashraf Laidi
Jul 27, 2011 18:04 | 13 Comments

As risk currencies become quickly overcrowded and range-bound equity indices remain the territory of traders rather than investors, silver once again appears as the notable gainer, characterised by richly similar fundamentals to gold. The only thing is that silver is trading 20% below its record high.

Here are 3 general reasons to our renewed preference for silver

Inter-metal dynamics

Gold has always preceded silver in hitting new record highs (due to liquidity & popularity of investing options to the public), but silvers subsequent catch-up has rendered this pattern an attractive investment reality. This has especially been the case since summer 2010. It is important to remember the main reason to silvers severe underperformance relative to gold in April/May was artificial interference (exchanges quadrupled he margin requirements).

The fact that silver is 20% below its high despite improving metals fundamentals presents a notable opportunity for silver. The chart below (right) shows how the Gold/Silver ratio has resumed its decline, which is the case each time metals rise in concert.

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Silver Lining, Debt Ceiling & Quant Easing - Gold Silver Jul 25 (Chart 1)


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Silver Lining, Debt Ceiling & Quant Easing - Silver Specs Jul 27 (Chart 2)


Fundamental

The fundamental arguments to rising metals have changed little since the record-breaking days of March-April 2011. In fact, if anything, they have improved.

i) Regardless of the nature of any solution to the US debt ceiling problem, debt monetization and printing fresh paper by the US Treasury is here to stay. Meanwhile, the probability of a downgrade in the US credit rating has risen from zero, one year ago to 50-50% today according to S&P. This rapidly-changing landscape

ii) Combining the above with the broadening reality that US short term interest rates shall remain at zero until at least end of 2012 and QE3 is an impending likelihood, the substitute nature of metals to interest-rate bearing assets (money) shall continue to prevail in value.

iii) Europe may be free of bipartisan resistance to debt negotiations (as in the case in US partisan politics) but the tripartite lifelines remain short-term in nature as long as sluggish growth is unable to bring down the debt/GDP ratio.

Technical

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Silver Lining, Debt Ceiling & Quant Easing - Silver Monthly Jul 26 (Chart 3)



The most striking technical argument to rising silver is the technical similarity between the current rebound and that of the February rebound (which led to new highs). Looking at weekly stochastics (momentum-related indicator) by using various speeds, we see the patterns are almost identical across different measures. This adds to the argument that the current price rebound carries sufficient follow-up momentum to lift it back towards the high $40s, at which point will draw retail interest back into the spring highs.

The other key technical development is silver's monthly chart, showing a rare bullish engulfing July candle, defined when the bar "wraps" around the prior month's bar, paving the way for prolonged gains. Expecting $47 /oz in August. The $50 record is seen before end of Q3.


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Comments (Showing latest 10 of 13) View All Comments
Woodster
North Vancouver, Canada
Posts: 2
8 years ago
Sep 16, 2011 5:38
I'm an investor in mint silver coins which , I belive the coins I buy at the spot price say at..$ 39.88 Cn tomarrow Sept. 16 , 2011 will triple in value within the next 2 years. This increase in the value of silver is many reasons mainly caused by the the insecurity in the Euro and the general demand for silver for industry use. Bottom line. Gold & silver is " real money " not paper which the U.S. Treasury keeps the money presses running 24/7 which in turn brings inflation to the fore front. To all...Good investing.
chandra
chittorgarh, India
Posts: 13
8 years ago
Sep 7, 2011 13:52
no one reply properly on silver where is going.....?
chandra
chittorgarh, India
Posts: 13
8 years ago
Aug 23, 2011 5:35
"What Next for Silver?" 44.55 what is Hurdale or target. tell me what isnext 4 SLV.
DaveO
N.Cornwall, UK
Posts: 5733
8 years ago
Aug 11, 2011 16:13
chandra, resistance for ABC (or gartley) pattern worked fine for silver at the 42.2 spot high
cat0nip
Frankfurt, Germany
Posts: 1632
8 years ago
Aug 11, 2011 15:41
imo gold silver rally not triggered by US downgrade but by Ezone in danger of breakin up.
With SNB intervention EUR won a bit of time and gold silver will drop.
Problem still remains with french italian bank stocks they recovered a bit but still in emergency zone.
chandra
chittorgarh, India
Posts: 13
8 years ago
Aug 11, 2011 15:38
no body know where is going to silver no support resistnce r properly work
chandra
chittorgarh, India
Posts: 13
8 years ago
Aug 10, 2011 13:20
break 39$ then major bulish rally support 37.50-37-36.50 ZONE.
DaveO
N.Cornwall, UK
Posts: 5733
8 years ago
Aug 10, 2011 12:08
nah, Ashraf seeing silver going up every day. Perhaps he needs to refresh his chart data ?
Lawrence
Tennessee, United States
Posts: 14
8 years ago
Aug 10, 2011 4:06
Ashraf, why is silver declining while gold goes parabolic? All the other currency movements over the past few days make sense to me, but this one has me baffled.
Callum
Singapore, Singapore
Posts: 179
8 years ago
Aug 9, 2011 15:24
Is Silver still a good LONG under 38? Would lower Bollinger Band (20) or DMA (50) in the 37 handle look like a reasonable support levels?