Silver – Time to buy

Silver – Time to buy

Puru Saxena
Posted May 14, 2011

Only two weeks ago, the price of silver was rapidly appreciating in a parabolic advance. Back then, sentiment towards the white metal was extremely bullish and its price was approximately 78% above its 200-day moving average. Furthermore, on the 25th of April, silver registered a key reversal whereby its price tested the all-time high recorded in 1980 but failed to hold on to its intra-day gains.

You will recall that after observing all of the above conditions, we sent out an alert advising investors and speculators to take some money off the table. As it turns out, our caution was warranted and what has recently transpired can only be described as a rout in the silver market.

It is notable that although we were looking for a big medium-term correction in silver, even we were taken aback by the force of the decline. It is astounding that within two weeks, the price of silver fell by approximately 35% and today, the white metal is trading at just US$34 per ounce. It goes without saying that the recent price action in silver is yet another reminder that commodities are extremely volatile and parabolic moves always end in tears.

Now, we are aware that many manipulation theories are currently doing the rounds whereby the affected parties are claiming that silver's plunge was due to an orchestrated takedown by the banks. Obviously, there is no way to prove this but it pays to remember that when any asset appreciates by 190% in 8 months, most of the buyers have already bought into the bullish thesis. Therefore, after the buying has exhausted itself, profit taking and short-selling bring about the reversal and the price retraces a large portion of the gains. This is how the world's financial markets have operated since the beginning of time and 'this time is different' are the four most expensive words in an investor's dictionary.

Turning to the present situation, the price of silver is currently trading around US$34 per ounce. Moreover, it is noteworthy that on two occasions, the price of the white metal briefly dipped below US$34 per ounce, however on both days, it closed above that level. This price action leads us to believe that silver is finding some support in the US$32-34 per ounce area and it is conceivable that most of the selling is now behind us.

In terms of the technicals, silver is currently trading only 17% above its 200-day moving average and its daily chart reveals a double bottom formation. Moreover, investor sentiment towards the white metal has changed dramatically and euphoria has been wrung out of the market. Thus, bearing in mind the possibility of a base formation and the negative investor sentiment, this is the time to start accumulating positions in silver.

Look. We do not possess a crystal ball and have no divine powers to accurately predict the future. However, we believe that the risk/reward for silver is now favourable and barring a deflationary meltdown, the downside is limited.

Our analysis suggests that under the worst case scenario, the price of silver could decline to US$30 per ounce but even that level is less than 15% below the current price. So, this is the time to re-allocate capital to the silver market but investors should bear in mind the possibility that silver will not climb to a record high anytime soon. Instead, the probability favours a lengthy base formation which will then act as a launch pad for silver's next rally.

Finally, it is our contention that during the next rally in precious metals, silver will not be the leader. After all, the recent plunge has devastated investor sentiment and it is unlikely that the party goers will show up at the same ball again.

If our assessment is correct, the precious metals sector will experience a rotation, whereby investors and speculators will now turn to gold. Accordingly, we believe that during the next big advance, the yellow metal will provide leadership and appreciate more than silver.

email: puru@purusaxena.com
website: www.purusaxena.com

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Note- Members express their own view  & may be or may not be having investment or speculative positions in the commodity, please do not take it as buy or sell advise, please use  your own judgments for buying or selling, after having discussion with your certified investment brokers or the person to whom u  have good level of confidence. once sentiment is changed from good to bad no good news work but bad news do work, investors must keep this in mind.NEW INVESTORS SHOULD BE VERY CAREFUL.

Gold Coins Show Bull Market Unbowed in Commodities Decline

By Nicholas Larkin and Pham-Duy Nguyen - May 16, 2011

Sales of gold coins are on track for the best month in a year amid the worst commodities rout since 2008, a sign that bullion's longest bull market in nine decades has further to run, if history is a guide.

The U.S. Mint sold 85,000 ounces of American Eagle coins since May 1 as the Standard & Poor's GSCI Index of 24 raw materials fell 9.9 percent. The last time sales reached that level, bullion rose 21 percent in the next year. Gold will advance 17 percent to a record $1,750 an ounce by Dec. 31 and keep gaining in 2012, the median estimate in a Bloomberg survey of 31 analysts, traders and investors shows.

Investors in exchange-traded products backed by the metal accumulated $98 billion of gold as prices rose 74 percent since U.S. borrowing costs fell to near zero in December 2008 and the Dollar Index dropped 6.2 percent. With the gauge, a measure against six currencies, forecast to weaken through 2012 and the Federal Reserve expected to keep rates on hold through the fourth quarter, the rally may not reverse any time soon.

"There is no sign that gold has peaked," said Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages about $85 billion in mutual funds and brokerage accounts. "We're going to find that the U.S. economy is not very strong," he said. "A low interest-rate environment will remain for possibly all of 2012. The dollar goes down."

Gold Rally

Bullion rose almost sixfold from a two-decade low in 1999 while the Dollar Index fell 35 percent since the end of 2001. The gauge will drop 2.9 percent more this year and another 3.7 percent in 2012, the median of analysts' estimates compiled by Bloomberg shows. The two have an inverse correlation of 0.78, with a figure of -1 meaning they move in opposite directions all the time, making gold a hedge against a weaker dollar.

Gold rallied every year since 2001, attracting billionaire investors George Soros and John Paulson, and reached a record $1,577.57 in Londonon May 2. The metal rose 0.1 percent to $1,496.57 today.

The S&P GSCI Total Return Index of commodities rose 25 percent since the start of 2001, the S&P 500 Index made about 25 percent with reinvested dividends and Treasuries returned 72 percent, a Bank of America Merrill Lynch index shows.

While the 2,041 metric tons accumulated through metal- backed ETPs helped drive prices higher, it also represents a threat. Holdings dropped 3.3 percent in the first quarter, according to data released by the ETP providers. The details of which investors changed their holdings in that period are being revealed in Securities and Exchange Commission filings.

Fund Holdings

Touradji Capital Management LP, founded by Paul Touradji, sold 173,000 shares in the SPDR Gold Trust during the quarter, valued at about $24 million as of March 31, an SEC filing May 13 showed. Astenbeck Capital Management LLC, run by Andrew Hall, bought a stake in the Market Vectors Gold Miners ETF valued at $32.5 million on March 31, a separate filing shows.

Soros Fund Management LLC held 4.72 million SPDR Gold Trust shares as of Dec. 31, equal to about 14 tons, an SEC filing Feb. 14 showed. Soros described gold in January last year as "the ultimate asset bubble." The fund sold some holdings because it no longer expects deflation, the Wall Street Journal said May 4. Michael Vachon, a spokesman for Soros, declined to comment.

John Paulson's Paulson & Co., based in New York, held 31.5 million shares in the SPDR Gold Trust on Dec. 31, making it the single biggest investor, an SEC filing in February showed.

The new filings from funds "may show that big names exited ETPs and this news may cause prices to slip in the very short term," said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. Some funds switched to holding gold directly so they wouldn't have to announce it publicly, he said.

Sales Climb

It's not just the U.S. Mint that saw accelerating sales. Rand Refinery Ltd., which makes the Krugerrand, said May 13 that sales are heading for their best month since August. Demand for physical gold on May 6 was the strongest since early February, Standard Bank said in a report May 11. The U.S. Mint sold 62,000 ounces of American Eagles in the first week of May, as the S&P GSCI slumped 11 percent, the most since December 2008.

Those sales are "certainly reflective of a strong wave of demand for physical metal," said Ross Norman, chief executive officer of Sharps Pixley Ltd., a London-based bullion brokerage. "What drives people towards physical metal, as opposed to ETF or futures, is fundamental insecurity. It's like safe haven in extremis."

UBS AG, Switzerland's biggest bank, had its second-best day this year for physical sales on May 9, according to a report the following day. The bank's sales to India, the world's top bullion consumer, are more than 10 percent higher than in 2010.

'Facing Challenges'

"There are more factors than at perhaps any other time in history that would suggest to investors they should own gold," said Michael Haynes, chief executive officer of American Precious Metals Exchange, an online bullion dealer that had its three best sales weeks ever in April and May. "We don't know if the euro is going to crack or stay and the dollar is facing challenges as the world's reserve currency."

Haynes, based in Oklahoma City, expects to ship as many as 15 million precious metals coins or bars this year, double last year's figure. The University of Texas Investment Management Co., the second-largest U.S. academic endowment, said April 14 it took delivery of about $1 billion of gold bars.

Another warning sign for the rally may be central banks adding to their reserves for the first time in a generation. Mexico, Russia and Thailandbought about a combined $6 billion in February and March, International Monetary Fund data show. Central banks hold 30,575 tons, equal to about 18 percent of all the metal ever mined, the data show.

Boosting Holdings

The banks were also boosting holdings in 1980 when gold rose to a then-record $850, only to fall for most of the next 20 years. That high is equal to $2,299 in inflation-adjusted terms, according to a calculator on the website of the Federal Reserve Bank of Minneapolis. Prices tripled from 1999 through the beginning of 2008 as the banks sold more than 4,000 tons.

"Central banks don't have the best track record trading gold," said Malcolm Freeman, managing director of Ambrian Commodities Ltd. in London. He pointed to the U.K., which sold about 400 tons over about a two-year period ending in 2002, getting no more than $296.50 an ounce.

Rising interest rates could also diminish the appeal of gold, which generally earns investors returns only through price gains. At least two dozen nations and the European Central Bank raised rates this year, data compiled by Bloomberg show. The Fed will probably hold its benchmark rate in a range of zero to 0.25 percent through the fourth quarter, according to the median forecast of 72 economists surveyed by Bloomberg.

Reduced Stimulus

Reduced stimulus may also strengthen the dollar. Fed Chairman Ben S. Bernanke signaled April 27 the bank will keep record monetary stimulus when its $600 billion bond purchase program ends in June, the second round of so-called quantitative easing. The Dollar Index rose 3 percent since then.

"If we get a rise in the dollar because the Fed is exiting QE2 in June, gold could hit $1,200," said Michael Pento, a senior economist at Euro Pacific Capital Inc. in New York who has correctly predicted the high in gold for the past two years. "It would be a buying opportunity."

The Dollar Index fell to a two-year low of 72.7 on May 4 and was at 75.71 on May 13. It will drop to 73.57 at the end of this year and 70.81 at the end of 2012, according to data compiled by Bloomberg from analysts' forecasts.

Investment Demand

Investment overtook jewelry as the biggest source of demand for the first time in three decades in 2009, according to GFMS Ltd., a London-based research company. Investor demand will climb 9.9 percent to 1,597 tons this year and another 11 percent in 2012, Morgan Stanley estimates. Of the 31 people surveyed by Bloomberg, 25 expect the bull market to continue next year.

The 3.5 percent decline in combined ETP holdings from a record 2,115 tons in December may be no bar to higher prices. When assets fell 3.7 percent in 2009, gold rose about 30 percent in the following 3 1/2 months.

"Near term, we like gold and we like agriculture," Jeffrey Currie, the London-based head of commodity research at Goldman Sachs Group Inc., told Maryam Nemazee on Bloomberg Television's "Last Word" May 13. The team correctly predicted this month's slump in commodities, telling investors April 11 to end a recommended trade in oil, copper, cotton, platinum and soybeans that returned 25 percent in about four months.

"Gold is simply pricing sovereign default risk, it still remains a big issue," Currie said. "There's a lot of concern over the end of QE and noise of QE3, so that kind of risk will continue to support gold prices. We see them trading up to the high $1,600s at the end of this year and going into the mid-$1,700s next year."

To contact the reporters on this story: Nicholas Larkin at nlarkin1@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net

To contact the editors responsible for this story: Steve Stroth at sstroth@bloomberg.net; Claudia Carpenter at ccarpenter2@bloomberg.net.

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Note- Members express their own view  & may be or may not be having investment or speculative positions in the commodity, please do not take it as buy or sell advise, please use  your own judgments for buying or selling, after having discussion with your certified investment brokers or the person to whom u  have good level of confidence. once sentiment is changed from good to bad no good news work but bad news do work, investors must keep this in mind.NEW INVESTORS SHOULD BE VERY CAREFUL.

GLOBAL PIVOTS – MONTHLY – MAY 2011

GLOBAL PIVOTS – MONTHLY – MAY 2011

04-05-11 17:07
** P M HIGH = Previous Month High, P M LOW = Previous Month Low, S  = Support  , R = Resistance
COMEX
COMMODITY	P M HIGH	P M LOW	P M CLOSE	S4	S3	S2	S1	PIOVT	R1	R2	R3	R4	+ / -
GOLD SPOT	1549.78	1412.88	1549.20	1108.10	1245.00	1381.90	1487.81	1518.80	1624.71	1655.70	1792.60	1929.50	111.40
SILVER SPOT	49.79	37.06	48.48	7.29	20.03	32.76	41.20	45.50	53.94	58.23	70.97	83.70	10.76
CRUDE APR 11	114.18	105.98	113.93	87.17	95.37	103.57	109.36	111.77	117.56	119.97	128.17	136.37	6.69
LME
ALUMINIUM 3 M	2778.50	2595.00	2767.50	2176.25	2359.75	2543.25	2675.00	2726.75	2858.50	2910.25	3093.75	3277.25	119.50
COPPER 3 M	9944.75	9207.00	9320.00	7214.56	7952.31	8690.06	8910.88	9427.81	9648.63	10165.56	10903.31	11641.06	-108.00
NICKEL 3 M	27950.00	25050.00	26850.00	17946.75	20846.75	23746.75	25343.50	26646.75	28243.50	29546.75	32446.75	35346.75	755.00
TIN 3 M	33600.00	31200.00	32050.00	25043.75	27443.75	29843.75	30887.50	32243.75	33287.50	34643.75	37043.75	39443.75	250.00
ZINC 3 M	2555.00	2212.00	2247.00	1282.00	1625.00	1968.00	2067.00	2311.00	2410.00	2654.00	2997.00	3340.00	-115.00
LEAD 3 M	2904.00	2455.00	2491.00	1241.75	1690.75	2139.75	2273.50	2588.75	2722.50	3037.75	3486.75	3935.75	-204.00
CURRENCIES
USDINR	44.7000	43.9000	44.2150	41.9200	42.7200	43.5200	43.9400	44.3200	44.7400	45.1200	45.9200	46.7200	-0.3725
USDSGD	1.2634	1.2219	1.2228	1.1082	1.1497	1.1912	1.2019	1.2327	1.2434	1.2742	1.3157	1.3572	-0.0374
EURUSD	1.4882	1.4063	1.4826	1.2204	1.3023	1.3842	1.4441	1.4661	1.5260	1.5480	1.6299	1.7118	0.0636
GBPUSD	1.6747	1.5973	1.6694	1.4203	1.4977	1.5751	1.6303	1.6525	1.7077	1.7299	1.8073	1.8847	0.0630
SGDINR	36.2370	34.8960	36.1875	31.8631	33.2041	34.5451	35.5353	35.8861	36.8763	37.2271	38.5681	39.9091	0.8107
DOLLAR INDEX	76.6100	72.8340	72.9330	62.5295	66.3055	70.0815	71.1050	73.8575	74.8810	77.6335	81.4095	85.1855	-2.9240
USDJPY	85.5300	81.1000	81.2300	68.9750	73.4050	77.8350	79.0000	82.2650	83.4300	86.6950	91.1250	95.5550	-1.6000
ASIAN & AMERICAN MARKETS
BSE	19811.14	18976.19	19135.96	16720.80	17555.75	18390.70	18640.16	19225.65	19475.11	20060.60	20895.55	21730.50	-309.26
NSE	5944.45	5693.25	5749.50	5015.63	5266.83	5518.03	5594.00	5769.23	5845.20	6020.43	6271.63	6522.83	-84.25
STRAITS TIMES	3208.34	3103.22	3179.86	2852.67	2957.79	3062.91	3127.71	3168.03	3232.83	3273.15	3378.27	3483.39	74.01
HANG SENG	24468.64	23468.20	23720.81	20861.81	21862.25	22862.69	23257.62	23863.13	24258.06	24863.57	25864.01	26864.45	193.29
DOW	12832.83	12093.89	12810.54	10419.09	11158.03	11896.97	12438.99	12635.91	13177.93	13374.85	14113.79	14852.73	490.81
NASDAQ	2876.83	2706.50	2873.54	2318.05	2488.38	2658.71	2781.26	2829.04	2951.59	2999.37	3169.70	3340.03	92.47
This research report is prepared for general information. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.

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Commodity Daily

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Note- Members express their own view  & may be or may not be having investment or speculative positions in the commodity, please do not take it as buy or sell advise, please use  your own judgments for buying or selling, after having discussion with your certified investment brokers or the person to whom u  have good level of confidence. once sentiment is changed from good to bad no good news work but bad news do work, investors must keep this in mind.NEW INVESTORS SHOULD BE VERY CAREFUL.