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Silver XSLV Short Squeeze

World Silver Index XSLV, Nov 9th, 2010.  9am PST

The XSLV is up yet again today, partially due to investor demand, trend traders, day traders and last but not least, the Shorts that are covering their positions.  Silver has hit the upper trend line and may trade sideways for a little while before rising to the $30 level.

XSLV 2 year chart with upper trend line based on 2009 peaks

With the shorts covering their positions, it may just knife through the upper trend line right to $30...(?)  It will be an interesting month of November for the precious metals and especially Silver to say the least.

Silver short

Taken from an article that was recently published regarding the run-up of Silver and the short positions in the market:

"Silver is experiencing the kind of demand that marks historic bull markets. Gains of the extent that it is displaying are evidence of distressed shorts being mercilessly attacked by strong handed bulls," wrote Chris Mullen of Gold-Seeker.com. "Keep in mind that these shorts are not weak-handed, having had their way with this market for many years but it is clear from the extent of the gains being produced that large, well-funded and determined buyers have come into the silver pit with a steely determination to engage their enemies. A large contingent of the silver bears are hemorrhaging seriously and are beginning to abandon the field."

Only the strong willed and determined Silver shorts will stay in this market as November is typically a strong month for Gold and the metals markets. When you add QE2, it bodes well for Silver going forward.  The industries that use Silver for their products will also be taking note of the increase in the price over this year and may begin to purchase the metal now, instead of higher prices next year.

Even if Silver does pull back, It may find support at the first fibonacci level of 23.6 as it did in late October due to strong investor demand. In summary, the major shorts may be destined to lose a substantial amount of money, they just need to decide how much they want to lose when the eventually buy back. 

Silver (SLV) shining brighter than Gold

3 month daily chart of SLV iShares Silver Trust ETF

SLV has hit the first fibonacci objective 161.8 level based on the 2008 lows and the 2009 high in December. With the Fed's announcement of QE2 yesterday and essentially printing up an additional 600 billion, the devaluation of the US Dollar continues.

SLV was up 5.69% while GLD was up 3.39% today. Silver continues to outperform Gold since the start of this seasonal rally. The Gold/Silver ratio continues to drop and investors that have been long Silver have been handsomely rewarded.

There are still quite a few Comex Silver short contracts that have been loosing money with every penny that Silver goes up.  Most probably thought that last weeks correction was going to go deeper so they could cover, but investment demand proved otherwise. Expect a short squeeze continuing for the remaining of November and possible profit taking in December by large institutions and hedge funds to book in a profitable 2010 year.

A combination of physical Silver, ETF's and Silver miners are the best way to invest in this particular metal. All of the major and mid tier Silver miners have made significant gains over the last 2 months which include:

Pan American Silver
Silver Wheaton
Silver Standard
Silvercorp Metals
Mag Silver
Hecla Mining
Endeavour Silver

Sit tight for the next 18 days (the amount of business days left in November) and watch the rally continue. The shorts should be uncomfortable now and should be covering unless they are waiting for higher buyback prices....

GLD Nov 1st

GLD Nov 1st, 2010

Here is a 3 month chart of the SPDR Gold Trust, GLD.  It started to pull back in the 3rd week of October after a rally that started in August. But, it did not pull back as deep as some have suggested.  It dropped to the fibonacci retracement level of 23.6 which was about the $129.5 area. Is that the end of the pull back and we are up from here? I'm not sure of that, but GLD is starting to creep back up and is not too far away from the all time high.

With the FOMC meeting this coming Wed and the mid term elections on Tuesday, we should see some reaction from the precious metals markets, positive or negative.  I'm leaning towards the positive side as Quantitative Easing is never good for Fiat currency.  We shall see soon.

Nov 1st SLV

Nov 1st SLV

Here is a 3 month view of the iShares Silver Trust ETF.  It had a small pull back in the 3rd week of October that is almost exactly the same time as the pull back in Oct 2009. If SLV resembles last years moves, we will see a rally in November. That is a big IF, nothing is for certain and we can only take a 'educated guess' where Silver and SLV may be going based on fundamental data plus a bit of technical analysis.

SLV currently has made higher highs and higher lows off of the break last week and is trading above the 15 day moving average. A fibonacci 161.8 level is around the $25.5 area which may be reached this month. The base fibonacci levels were taken from the lows in 2008 to the Dec high in 2009.

There is a FOMC meeting this Wednesday that may impact the markets. QE2 is on the way, we just do not know how much money they will be printing and for how long.  The bottom line is that any money that is printed out of thin air bodes well for commodities in general.

The Silver to Gold ratio has been dropping over the last 2 months and if is continues to drop, expect Silver to rise even though Gold is flat.