Silver Short-Term Update

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October 8, 2012

I know it is practically heresy to suggest silver and gold could go down (gold and silver perma-bulls – you know who you are), especially after Bernanke has announced $40 Billion per month of bank bailouts (QE4-Ever) that is supposed to increase employment, but consider:

  • Using SLV as a proxy for silver, (SLV is usually about a buck lower than spot silver) SLV hit a low on June 28 at $25.34. On October 1 it touched $34.08, an increase of 34% in 3.5 months. Nice move!
  • Silver looks tired. SLV closed on September 13 at $33.75 and has effectively gone nowhere since. The close on October 5 was down $0.30 to $33.45. Many are saying that the “line in the sand” for the silver bulls and bears is $35 silver or about $34 SLV. It can’t go higher, or it is not allowed to go higher. Take your pick.
  • The MACD (graph below) gave a sell signal on September 21 and has been going down since then.
  • SLV closed below the uptrend line on October 2.
  • Silver analyst Clive Maund is also looking for a pullback. Read his article: Silver Market Update
  • All markets eventually correct.

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The silver and gold markets are both over-bought and ready to correct their recent rally. They might not, and we can certainly find many fundamental reasons why they should not – such as QE4-Ever, massive federal deficits, Middle East war possibilities, European financial disasters, massive gold and silver purchases in Asia, and probably 100 more. But, in spite of the fact that I think much higher prices are all but inevitable in the next several years, in the short term we could easily see a pull-back. I see horizontal support around $30.75 in SLV (about $31.75 for spot silver) and lower at $29.00 for SLV ($30.00 for spot silver).

There are no guarantees, just probabilities, depending on your investment time frame. Specifically:

Time Frame Comment
Next week Good chance to see lower prices
Late November 2012 Probably higher prices than today
June 2013 Prices will almost certainly be higher – for example $55.00 silver and $2,300 gold
3 – 4 years from now Much higher prices for both gold and silver – say double for gold and triple for silver

Should you buy either silver or gold now? It depends on your perspective. If you will be uncomfortable buying today and watching the market temporarily drop 5 – 10%, then wait. If you aren’t worried about daily or weekly price changes, then buy now, or next week, or next month.

But, really, we all should have bought in July when the MACD was negative and rising and when the price was below the 200 day moving average. Buy low when the oscillators (MACD and others) are down and turning up and when the prices are well below the 200 day moving average. If you follow that simple rule, you will do well in long-term bull markets, such as the current bull market in gold, silver, copper, wheat, corn, oil, and other commodities. The same was true for the S&P 500 index from 1982 – 2000 during the stocks bull market.

For additional analysis on projected gold and silver prices in mid-2013, read the following articles:

GE Christenson
aka Deviant Investor

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8 thoughts on “Silver Short-Term Update

  1. Why did silver close at around 33.30 on 12/3 but as of this post at 11:30 on 12/4 it shows it down .74 cents to 33.02 When did it reach 33.76 and how is this not a fraud against ETF’s

    • Robert:

      My data service (Genesis out of Colo Springs) shows that silver closed at 33.71 on Dec 3. That would be the closing price for the futures market at, if I remember correctly, about 1:30 pm CST.

      But some sites reference prices relative to 3:00 pm CST when the stock market closes. That can change the relative day-to-day change. Further, the SLV ETF price is NOT the same as the futures price. Usually the SLV price is about $0.80 to $1.00 less than the futures silver price, but the SLV ETF closes at 3:00 pm and so big moves in the last hour of trading can increase or decrease the spread. SLV actually closed at $32.52 on Dec 3 – about $1.20 less than the futures close.

      I don’t think this is a fraud against ETFs. I do think it is both a timing issue and a premium/discount issue between the ETF and the futures price of silver. I know that many people speculate that the SLV ETF has fraud associated with it, but that relates, as I understand it, more to paper silver instead of real physical silver backing the assets of the ETF. I have no comment on that issue, other than many people are concerned about it.

      GE Christenson
      aka Deviant Investor

      • Thanks, that helps. I understand that ETF’s are not the same, however I find it seams very strange, I also held nat gas on the up side, (didn’t pay attention to the heat wave that passed through the country) however bought at 3.74 or 36.50 on the 3x ETF on 11/26 Its now at 27.22 at close 12/4 yet natural gas closed at 3.545 less than a 6% drop on the commodity but far more than a 18% drop on the 3X leveraged ETF noticed the trend and got out on 11/29, as well as finally checked the weather. Just thought it seemed like a convenient way to drop the ETF disproportionately to the commodity and it looks very similar in silvers case… so basically I should look out for the close of the futures as a leading indicator of the real closing price, which is 1:30 CST. P.S. Don’t know what I was thinking to believe there could be fraud in the stock market it’s never happened before. ?;^)}

        • Fraud in the markets. What a shocking idea! Who would think that sociopaths would buy politicians and purchase exemption from prosecution and then take advantage of the situation for their personal gain? Maybe we should ask the clients of MF Global if they think such a thing could happen.

          The natural gas ETFs are difficult to trade. The Natural Gas market is very volatile and complex. The futures contracts change each month and are strongly seasonal, and so the currently posted price of natural gas can change widely overnight – at contract roll-over dates. The ETFs are supposed to invest in a collection of different expiration dates to minimize that roll-over volatility. Plus, I’m suspicious of the fees that are sucked out of the ETF price. My advice – stay away from natural gas ETFs.

          GE Christenson
          aka Deviant Investor

          • I agree, that’s why short selling is such a unsung art. You can watch them set them up and knock them down, like housing stocks, bank stocks,and individual picks like RIM, and others as they over value them, hype them, then ride them down using the talking heads. What should we expect when all the profits are funneled out to the top CE whatever’s and their debts are passed to every one else through a limited liability bank(corrupt)sea, along with those paper slingers you mentioned earlier creating a market that has nothing to do with supply and demand, just the demanded supply of paper. I also enjoyed seeing the merger agreement of ABN to CITI was signed by the same guy as president of both banks no con-flicks of interest their. I wonder If he used a mirror when signing the merger docs to make it feel legitimate. who’s on first? bugs bunny, second base? bugs bunny, short stop? bugs bunny. outa space enjoy your post. Robert Alan C.S.I( contrarian sceptic invester & crime scene investigater.)

          • oh look it’s a bait and switch hump day look at that nat gas cook up 5% .177 to 3.716 3 cents under were I bought, yet the etf I mentioned earlier is at 31.00 I wonder If it will return to 36.50 area (not really) when the nat gas reaches 3.744 were I bought it… it’s only about 18% away. neat tricks.

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