Wednesday, March 23, 2011

Precious Metals Update

Specific price predictions are a recipe for disaster as no one human can accurately and consistently predict how and when something will happen.  With that said, some clarity is appearing in the silver and gold charts.

Silver is clearly experiencing extreme demand.  The chart is technically unhealthy as pullbacks would build a stronger base.  The fundamentals could have been so warped by primary dealer shorting and abuse that they will not return until much higher on the chart.  At this time $40/oz or $31.50/oz seem to be the next likely targets before 6-1-11.  Extension higher is possible but a fall below $31.50 would be surprising.  This morning's print of $36.52/oz leaves the spot metal above all tracked moving averages.  Testing would occur at $35.50 and $35.08 but does not seem likely.  The physical metal seems unavailable and that could push us right up to $40/oz.

Silver mining shares should move today and throughout this next extension.  There is no need to chase the shares up as when silver eventually consolidates there should be another buying opportunity.  Market professionals have access to millions of dollars worth of resources and computers but still have not been able to fully comprehend the leverage that a well managed silver miner has to this current price.  Many bargains exist in this sector and a buy in the right name over the past 2 weeks should make for a nice Christmas.

Gold is much less exciting.  At this time the metal is trading in a strong range and continues to bump it's head on the top of that range.  This range can be charted by drawing a line connecting the early 2008 and late 2010 highs.  Breaking out of this range would appear unhealthy if it occurred before 3rd quarter of 2011 as an insufficient base would have been established.  For new readers this would be the equivalent of building a house on weak concrete during a housing boom in a rush to go vertical.  It might be fine, but waiting for a load test before building would make more sense.  If the price does break the channel it will run up as high as $1,900/oz quickly but will come back and test the top of the channel around $1,600/oz in a wild ride that inexperienced investors should avoid.

Prediction: More base formation between now and an early June low with steady summer strength building for a 3rd quarter explosion into a new range with a surprise high test near $2,000/oz between 11-1-11 and 12-10-11 before closing the year just under $1,800/oz.

Gold mining stocks are still not that exciting.  The favored small producers with less than 400,000oz/yr of production are not screaming to be purchased.  Silver miners remain the favored position in the hunt for appreciation.  In the gold space, prospect generators seem to offer the best value right now as the next phase will cause an acquisition spree.  Some prospect generators have market caps that could be quadrupled with one asset sale.  This represents the easy bet in the gold sector today.

Blue blood republicans and Wall Street Journal loyalists please log off now.

Prediction: Libya is being invaded in an effort to gain access to it's gold reserves.  Gaddafi will surrender in exchange for a lease agreement on his gold stash.  While the problems in the physical gold market differ from those in silver they are still creating waves.  This ties in perfectly with the predicted price action in gold discussed above.  Roughly 150 tonnes of gold added to the physical market will buy the bullion banks some time delaying the ultimate reality.

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