James Turk: Expect A Violent Move Higher In Precious Metals, Especially Silver (SLV, GLD, PSLV, AGQ, ZSL)
December 5th, 2011
Dominique de Kevelioc de Bailleul: While the silver price (NYSEARCA:SLV) moves higher with the gold price (NYSEARCA:GLD) during this latest consolidation phase in the bull market for precious metals, Goldmoney’s James Turk expects another violent move higher for the metals, especially the price of silver.
“This move [in the silver price] is going to catch a lot of people by surprise as evidenced by the extremely low sentiment readings,” Turk told King World News, Monday, pointing to the lack of overall enthusiasm in the precious metals market of late, with a relatively steep contango in the silver futures market chain serving to support his thesis. “Those low readings are a clear indication that there is a lot of money on the sidelines that is waiting to jump on board.” Get my next ALERT 100% FREE
Such low sentiment readings and steep contango prices in the silver futures haven’t been seen since the first quarter of 2010, when problems in the Greek sovereign debt market first emerged. At that time, fears of another Lehman event, this time from Europe, took the DJIA sharply lower from its intermediate post-crash peek of 11,250, down to 9,600, a nearly 15 percent correction in the 30 Industrials.
In contrast, after trading between the $15 and $18 range during a nine-month period of September 2009 and June 2010, the silver price climbed higher in the face of a risk-off-then-risk-on-again trade in stocks of 2010 as the white metal never looked back, soaring to just shy of $50, from the $15 base of the previous flagpole pattern.
The tremendous rally in the silver price took Wall Street by surprise, as any asset rising this rapidly typically begets a much wider audience beyond the silver bug watchers. That contrarian signal suggested to legendary commodities investor Jim Rogers that the silver price would need to “settle down” before he’d become a buyer again. The weak hands had taken over the silver market.
But as the silver bugs remember, all too well, the steep and dramatic drop in the silver price to $25 sent the weak hands to slaughter, as a series of five margin hikes compound the pressure of a rapidly falling market to sell into the hands of the strong.
“During a big correction like the one we’ve just gone through, a lot of weak hands get shaken out of the market,” said Turk. “We know that has happened because of the change in open interest and also because of the smaller volumes of late.”
Today, the situation has reversed direction, according to Turk. Silver futures are back in contango and Jim Rogers is talking about silver once again. Moreover, as the crisis in Europe escalates, Europe’s new ECB chief, Goldman Sachs alumnus Mario Draghi is now printing approximately 30 percent more than the Fed is—and the European central bank needs to print more, and could get some needed help from the Fed, according to zerohedge.com.
“Throughout history, when things have gone wrong, they [central banks] print money … when they print money, you should own silver, you should own rice, you should own real assets,” Rogers said in an interview with CNBC of Nov. 23. See BER article.
Back to Turk, who said he’s calculated a target for the silver price during the upcoming next leg higher. By taking the April 2011 high and subtracting the September 2009 and June 2010 base price—a common and fairly successful technique applied in the use of technical analysis—Turk expects the next move higher will achieve an all-time record price for the metal.
“The first we have already spoken about, namely the bullish flag pattern on the weekly silver chart (above). When silver breaks out to the upside, this flag measures to a target price of around $68 to $70,” Turk explained. “More importantly, the jump out of the flag should happen more quickly than the $18 to $50 move we saw back in 2010 and early 2011, which took about nine months.”
Related: ProShares Ultra Silver (NYSEARCA:AGQ), Sprott Physical Silver Trust ETF (NYSEARCA:PSLV), SPDR Gold Trust (NYSEARCA:GLD), ProShares UltraShort Silver (NYSEARCA:ZSL), iShares Silver Trust (NYSEARCA:SLV), Market Vectors Gold Miners ETF (NYSEARCA:GDX).
By Dominique de Kevelioc de Bailleul From Beacon Equity Research
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