Thursday, May 12, 2011

Silver Market Update

Many of you have been emailing with questions on this month's silver action.  This causes concern that you may not have read previous posts thoroughly.  With silver at $48/oz we directly instructed you to "Stay out of this fight" between paper shorts and physical longs on the Comex.  We recommended not selling or buying physical silver until the market provided more clarity.

We will not be an accomplice in your determined attempt to lose money.  Your editor has experience in common stocks, preferred stocks, futures, options, bonds and exchange traded funds in domestic and international markets.  Even our warnings can not stop the successful professional who makes money in his day job then runs to the market salivating over the opportunity to generate capital losses only to tell his accountant of how someone else is to blame.

Silver futures, ETFs and leveraged products are totally inappropriate investment vehicles for people who want to generate capital gains in a bull market.  These volatile, fee heavy products are often managed by the same firms that hold tremendous silver short positions on the Comex.  Gamblers who possess a high threshold for failure cannot resist the lure of these products.  They are addicted to a pattern of pressure, pain and release like a masochist.  Rarely do they examine their own role in the loss in order to learn.  They blame, heal wounds and return for more.  This is the true definition of insanity.

The temporary blow-off top in silver was followed by a thinly traded Sunday night futures session dominated by sell orders.  The market went bid-less several times during that session.  When this occurred there were many stop orders triggered and a feedback loop was created sending the price plummeting.  The metal mounted a predictable rally to the $39 level and is now moving back down to the low $30s.  We want to be on the record saying that we predict a grinding consolidation for the next 12-14 weeks until a proper base is built.  As a reminder to compulsive gamblers reading this who are in an uncontrollable state of blame, this new base will be a full 100% higher than the base we built last August at $17/oz.  You were not interested in silver when we were shouting our buy signal last summer.  This one year chart should help put things into perspective.

On April 8, 2011 we wrote a piece suggesting a review of your silver allocation.  If you did not take our advice then maybe now is a good time?  There are several excellent silver stocks on our pick list that offer attractive prices at today's level.  Our anchor blue chip is screaming bargain.  Review our allocation model and spread buying evenly over the next 6 weeks.  As silver moves from weak margin induced sellers to strong cash buyers take advantage of the shift by building your own base.

After the 12-14 weeks consolidation period is over we expect silver to make a push to quickly through $50 and on to a yearly high of $60/oz in the first half of the 4th quarter of this year.

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