How Far Up Could Silver
By Przemyslaw Radomski, CFA
Last three months
were sort of a roller coaster for precious metals investors – gold and silver
hit a local bottom at the beginning of November and it looked like nothing could
stop a strong rally to follow. Yet the fears concerning the “fiscal cliff” issue
seem to have won and stopped the prices at the end of November. Moreover,
gold & silver correlations structure that used to propel the rally got
distorted and even though the dollar weakened and the general stock market got
stronger, precious metals were unable to react.
turned out that the end of 2012 was not the end of the U.S. economy and the
“fiscal cliff” was a mere scarecrow and not the doom of the financial markets, a
rally begun. Will it be the long-awaited rally that could bring precious metals
to their new all-time high? There are no
certainties on any market, but as the correlations
seem to be returning to normal, it gets more and more likely. This is because
precious metals are not the only assets that have gone up in price recently –
the general stock market, in fact, seems to be doing even better and the dollar
is in a downtrend.
To see what the
markets themselves can tell us, let’s jump straight into today’s technical part
– we’ll start with the general stock market, using S&P 500 Index as a proxy
(charts courtesy by
above their 2012 high (on Thursday) last week, even when considering intra-day
price levels. This is a bullish phenomenon which is not yet confirmed. We prefer
to wait and see that stocks close above this level next week as well, before
saying that the breakout is completed, but the situation is clearly more bullish
than not at this time.
It’s also more bullish than it was last week because back then we
only had an unconfirmed breakout above the highest closing price of 2012. This
week we have it confirmed and an additoinal, unconfirmed breakout.
Let’s now have a look at
the financial sector
serves as a proxy here) chart, a sector which often
leads stocks higher or lower.
Recent moves here
have been strong to the upside. The financials have broken out above the
declining resistance line and verified it. Weekly closing prices have been there
for three weeks. With RSI levels now above 70, some consolidation is possible
but will not necessarily be seen immediately.
Let’s move on to
the silver market – we’ll start with the long term chart.
As we have
recent trading patterns here have been similar to early 2010 and this
continues to be the case. Back then, lower prices were not seen again once the
bottom was reached and the rally began. This could very well be the case once
was very significant from the very long-term perspective. Silver appears ready
to rally once again but prices have not yet broken out above the 10-week, 50-day
moving average. Only a small rally is needed to accomplish this, and the picture
will then be further approved.
To finish off, we
take a shot at projecting possible long-term moves on the white metal’s market.
We include a
second very long-term silver chart today because if this is the final bottom
(the long-term support line suggests so) and if after a prolonged consolidation,
we get a rally similar to 2010-2011, we could be looking at a rally to the $77
level. This may not happen, but several technical tools align and such a move is
not out of the question. Now, there could be a breakdown, weakness or
consolidation and the indications do not say the rally is very likely to
happen, but such a rally would not be out of tune with historical patterns. In
other words, it would appear quite normal. This is a very early heads-up and
something to keep in mind, the next time you hear that silver can’t move so high
– it can and it can do it quickly.
to the market may think this is impossible, but $10 silver was
when its price was less than $5 for years. Now, $10 seems impossible because
it’s too low a price. If you are long silver for the long run as we are, this
picture should make holding silver easier.
up, the outlook is bullish for the general stock
market, and this is supported by the financial sector as well. Even though
correlations are not in their normal state yet, recent moves indicate that
they are moving back there, hence the implications are bullish for the precious
metals sector. The picture for silver looks favorable as well for the long and
medium term. The short term is a bit unclear, at least based on the above
charts, as recent rally may be followed by a brief consolidation.
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Thank you for reading.
Have a great and profitable week!
Gold & Silver Investment &
Trading Website - SunshineProfits.com
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All essays, research and information found above represent
analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits'
associates only. As such, it may prove wrong and be a subject to change without
notice. Opinions and analyses were based on data available to authors of
respective essays at the time of writing. Although the information provided
above is based on careful research and sources that are believed to be accurate,
Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or
thoroughness of the data or information reported. The opinions published above
are neither an offer nor a recommendation to purchase or sell any securities.
Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw
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