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.
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.
GE Christenson
aka Deviant Investor
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