Stewart Thomson: Silver & The Fab Four

By Stewart Thomson:

Fundamentally, I believe here are 4 major reasons that the long term silver chart looks “ultra-bullish.
First, the market is probably anticipating a substantial recovery in the Chinese economy, and perhaps additional government stimulus.
Second, the US fiscal cliff is likely to be resolved in a manner that encourages “risk on” institutional investors to take action on the buy-side.
Third, I expect the European Central Bank will announce measures that calm worries about not just Greece, but Spain and Italy, too.
Fourth, while the fiscal cliff will likely be resolved, I think the US Federal Reserve will expand the current level of stimulus being provided by QE3, probably in January, and this action could cause a near-vertical spike in all risk-on markets.

Silver is likely to be the greatest beneficiary of these 4 key events, even if they play out only partially.  If they play out as I’m predicting, I would expect silver to blast through the highs at $50, by early in the new year.  Silver at $80 is realistic, if these “fab four” events play out well.

1.   From one perspective, the daily silver chart has become technically overbought.  A number of key indicators and oscillators have risen to levels that are worrisome to some analysts.

2.   To view the daily chart, please click here now.  When an asset becomes technically overbought, the price of it doesn’t necessarily have to stop rising.  Sometimes the price can accelerate its rate of ascent.

3.   The Keltner lines on this chart are like the banks of a river.  When the water level of a river is low, the water stays between the river banks.  If the amount of water in the river rises, it can push beyond its banks.

4.   Please note the mid-August timeframe.  Silver roared up to the upper Keltner “river bank” at a price of about $29, and many indicators and oscillators then signalled that a correction was imminent.

5.   It was very tempting to sell a lot of silver as that happened.  Incredibly, instead of correcting, the price of silver then surged over the next 4 weeks, all the way to $35.

6.   The current set-up on the silver chart is very similar to that mid-August period.  I wouldn’t buy silver here, but I would be very careful about how much you sell, to “avoid a correction”.

7.   When assets are trading at relatively low prices, it is generally wise to err on the side of holding a bigger position than you feel comfortable with, and I believe that adage should be applied to the current silver market.

8.   The move from $29 to $35 was a phenomenal gain of about 20%.  If silver were to gain 20% again, while technically overbought, it could rise to $41 very quickly.

9.   It’s important to understand the difference between a drawdown and the destruction of wealth.  Silver is overbought on the daily chart, and that means it could decline, rather than “overflowing the river banks” and surging higher.

10.          So, the question you need to ask yourself is whether you really need to avoid every decline that occurs in the silver market.  I would suggest that all silver investors should work at building the intestinal fortitude required, to endure a $5 decline comfortably.

11.          Even a $10 decline should cause the investor to experience nothing more than mild discomfort, because these types of sell-offs do no damage to the silver asset itself.

12.          Please click here now.  You are looking at the monthly chart for silver.  It portrays a much longer term picture than the daily chart does.  The picture here is best described as “extremely bullish”. 

13.          Silver has staged a significant breakout from a key downtrend line on this big picture chart.  Almost every indicator and oscillator is flashing a “major uptrend in play” signal.

14.          Note the ROC indicator at the bottom of the chart.  It’s showcasing a rare head & shoulders pattern.  That suggests that silver may be “coiling”, for an enormous momentum-based move to much higher prices.

15.          Please click here now.  You are looking at the monthly chart of the FXI-nyse, an ETF that mirrors the “Chinese Dow”.  It is an index of 25 key Chinese companies, and you can see a “budding breakout” in play, taking price just above the major downtrend line.

16.          Institutions around the world have recently poured cash into Chinese companies, and they may be ready to pour in a lot more.  China is a creditor nation, with hundreds of millions of its citizens still living on farms.  Another rush into the cities by Chinese farmers would create enormous long term demand for both silver and gold.

17.          Fundamentally, I believe here are 4 major reasons that the long term silver chart looks “ultra-bullish”.  First, the market is probably anticipating a substantial recovery in the Chinese economy, and perhaps additional government stimulus.

18.          Second, the US fiscal cliff is likely to be resolved in a manner that encourages “risk on” institutional investors to take action on the buy-side.

19.          Third, I expect the European Central Bank will announce measures that calm worries about not just Greece, but Spain and Italy, too.

20.          Fourth, while the fiscal cliff will likely be resolved, I think the US Federal Reserve will expand the current level of stimulus being provided by QE3, probably in January, and this action could cause a near-vertical spike in all risk-on markets.

21.          Silver is likely to be the greatest beneficiary of these 4 key events, even if they play out only partially.  If they play out as I’m predicting, I would expect silver to blast through the highs at $50, by early in the new year.

22.          Silver at $80 is realistic, if these “fab four” events play out well.

23.          Please click here now. This is the daily chart for the Global X silver stocks fund, and you can see that while the daily chart for silver itself may be somewhat overbought, silver stocks are arguably oversold!

24.          One of my favourite technical oscillators is the 20,12,7 Stochastics series.  It’s flashing a very significant buy signal.  The “fab four” fundamentals for silver could double or triple the price of this ETF within months, and many of the individual components may be set to do even better!

 

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Cheers  St

Stewart Thomson

Graceland Updates

Written between 4am-7am.  5-6 issues per week.  Emailed at aprox 9am daily.

 www.gracelandupdates.com

Email: stewart@gracelandupdates.com

Comments

  1. I have never quite grasped the concept of “overbought”. I see distinction between physical silver and the paper silver! If one owns paper silver one doesn’t really own silver at all. The “paper silver” is nothing more than a financial tool that is sold at a ratio of 100 to 1 at least into the markets if Mr. Christian is to be believed. Even 1 ounce of paper silver bought would be overbought to me. 

    • “I have never quite grasped the concept of “overbought”.”

      My take on it is that since the investing markets are basically auctions, emotions can get carried away with people bidding more for something than it is really worth, so the price is bid higher than it would have been without the mania.  We see this all the time in eBay auctions, for instance, but it also happens in the stock market.  The reverse also happens when something is “oversold”.  In that case, people get depressed with an investment and sell it at “market”.  If others try to sell a lot of this same investment at roughly that same time, the price spirals downward until it is below a realistic price.

    • If the paper silver to the physical silver ratio 100 paper for one physical, then the real price of silver should be at about 3344$ per ounce if the price of silver right now is 33.44$ per ounce, if we remove all paper silver and if the paper silver aren’t backed by the physical silver.

  2. The events described need not play out for silver to become much more valuable than it already is.  The greatest factor is scarcity.  The world’s population now exceeds 7 billion people.  There’s not enough available silver at this moment in time for each person to own even 1 single oz of physical silver.  (And to think that silver used to be used as daily money by the majority of the people in the entire world.)  So, even if someone owns just 100 oz of silver, they are already doing 100 times better than the average person on the street.  Therefore, does anyone think that something as scarce as 100 oz of silver should be valued at just $3,400 US Dollars?…
     
    Silver is SCARCE.  It is only a matter of time before the value of silver reflects this scarcity when more and more individual people acquire and hang on to their silver in preparation for the coming paradigm shift in the financial system.
     

    • The reason why silver is so low compare to its historical value is because before, it has been used as a monetary exchange and now, it has no monetary value. If silver becomes a monetary exchange again, then it would become scarce due to too much humans living on this planet.

  3. Re: I call BS on the first reason (Item #17 above) for Silver to jump in price:
    a substantial recovery in the Chinese economy

    THAT is not going to happen anytime soon!
    -  -  -  -  -  -  -  -  -  -  -  -

    Here’s an old comment regarding the Fab Four:
    Q:  What do you call a dog with wings?
    A:  Linda McCartney!    

  4. Interesting article on Pro Silver Paper but I’m a Silver Physical Stacker and I won’t be selling anytime soon and only when I need it to pay some bills if I don’t have the Fiat.

  5. Paper means zero in the physical market and paper chart analysis is even less useful.

  6. Silver blasting through 50$ per ounce in this new year is way too fast in my opinion. Because right now, I can see silver going down and it is now at about 33.50$ per ounce. That’s what everyone was saying last year and it didn’t happen.

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