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Perfect Storm For Gold and Silver Prices

In Market Analysis, Stock Movers on July 18, 2011 at 8:50 pm

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Originally published on marketwatch.com

“This year, investors have been engulfed by the perfect storm for gold, resulting from the Japanese earthquake and tsunami, Middle East and North African turmoil, credit downgrade warnings in the U.S. and the exacerbation of euro-zone debt fears, amongst others,” said Jeb Handwerger, editor of GoldStockTrades.com.

This chaos has had a positive effect on gold bullion and now investors are finally jumping on board,” he said. “This may be a significant move for several weeks.”

So why should anyone even suggest the possibility for any sizable declines in gold prices?

If the market develops a “parabolic rise” it may encounter “severe downturns,” said Handwerger, who’s also a natural-resource analyst. “Investors in any asset must grow cautious as a trade becomes crowded.”

Tides can turn

Finding out just how much caution to take is a challenge in a market where, apparently, a bullish stance is most common and supportive news for gold prices is plentiful.

But silver is a good example of just how quickly a tide can turn.

For the month of April, silver prices were up 28%, then posted a drop of 21% for the month of May following a series of margin requirement increases that squeezed some investors out of the market. Read the May 31 story on gold and silver.

“The recent spike in silver, followed by a waterfall decline due to the raising of margin requirements, reminds long-term precious metals investors that one must be prepared to accumulate products when there is a panic and sell them when there is euphoria,” said Handwerger.

Read the original article at marketwatch.com

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Silver Ascending Triangle Breakout. Major Move Expected

In Market Analysis on August 25, 2010 at 6:14 pm

Silver had very powerful break out today as investors are seeking assets that are safe and will retain value during a debt crisis.  Silver is  seeing demand at these price levels as it is historically cheap relative to gold.  If the ratio came down to the levels it was in 2006 it would be close to $27 an ounce.  Silver is soaring because investors are realizing this is a hard asset, it is money and it is historically cheap compared to gold.

Gold has reached overbought conditions from my July 28th buy signal.  Right now gold is a bit overbought while silver is at an interesting buy point, having found support for the fourth time at its long term 200 day moving average.  Today’s breakout of the symmetrical triangle, a very bullish chart pattern, is a sign that silver has built up a lot of internal strength and could break out into new three year highs. Remember, silver is significantly below all time highs while gold has already broken into new highs.

While I am bullish on gold, I believe investors could see a higher percentage move in silver.  I have also alerted my readers to a specific  mining company which has recently found a major discovery in Mexico.  Pure silver discoveries are very rare.  Silver supply is mostly produced as a byproduct which makes supply very inelastic.  A new pure silver discovery in a silver bull market could receive a nice premium.

I believe silver will make a major move on this break out. Investors are looking for a safe haven, protection and value in silver.  Gold has already made a significant move and is quite overbought, while silver has not participated to the same extent.  The gold silver ratio should move to historical norms which could mean a major move for silver.

If you do a study of the point and figure chart of the relative strength of silver versus the S&P500 since 2001, its strong uptrend is apparent. Each time silver falls back into support, it breaks out and makes significant rallies.

The break above the red bearish resistance line and a double top breakout coupled with the daily chart symmetrical wedge pattern demonstrates that silver has reached a critical juncture and could make a nice move.