Friday, April 15, 2011

$42+ Silver and heading higher

Daily chart of the World Silver index from late January 2011. 

At this time, the Silver market does not want to break down and pull back even after the massive rally since August 2010.
A fibonacci retracement is drawn from the low of 26.30 to the recent peak high of $36.75. The 161.8 fibonacci projection is around the $43.50 area which should provide resistence before a potential pullback is realized.
Technically Bullish
Silver has been trading above the 15 day moving average since March and is riding along the upper bollinger band.
RSI is overbought, it has been over 70 since April 4th. (How long can it stay there?)
Stochastics lost it's embedded status but the K line is heading back towards the 80 area.
It is producing higher highs and higher lows.

In early Friday morning trading (Before the NYSE open), Silver has hit $42.71. The right combination of factors to drive the Silver price higher.
  • Gold Silver ratio going back to its natural level of 15/1  (Currently at 34.7)
  • Industry demand with improving economy
  • Investor demand
  • Poor mans Gold, much easier for people to invest a few hundred dollars in Silver compared to $1475 Gold
  • Worldwide demand - China, India. Inflation worries growing.
  • Backwardation - Current price is higher than future prices
  • Shorts getting "Squeezed"
  • Silver has been outperforming Gold on a percentage basis since late August 2010 (attract more investors)

    One chart to leave you with is the Silver/US Dollar ratio. (An earlier post was the US Dollar/Silver ratio, this time it is reversed)  How much of the US Dollar Index does it take to purchase one ounce of Silver.

    The ratio is currently at .53 (.53 of the US Dollar Index to purchase one ounce of Silver)  I expect this ratio to hit 1:1 sometime in the future.  When and at what level is anyone's guess. I'll take a shot and state that it will be within 1 year and around the 65 level.

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