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Silver Prices On the Verge of a Major Move To the Upside Over the Next Year

By David Levenstein      Printer Friendly Version Bookmark and Share
Sep 23 2010 9:20AM

www.lakeshoretrading.co.za

Silver has been on fire in the last few weeks and the price has moved from $17.50 to a hair above $21/oz in six weeks. That is an increase of 20%! Not bad if you have been long, too bad if you have been short.

Last Monday, not only did the grey metal break the psychologically important $20 an ounce level, it remained above $20 for most of the week sending prices of this precious metal to a 30-month high. At the moment there is a lot of momentum in silver as investors snap up bullion bars, bullion coins while funds add silver to their positions, and it seems that there is still some steam left in this current move that may take prices above $21 before we see a pull-back.

While I admit that the price of silver looks a little overbought at these levels, the action in the last few weeks is a strong signal to investors that it is time to add this metal to their portfolios. Even if the price corrects in the short-term, as an investor these short term movements should not be of any concern. Silver is still grossly undervalued and still less than 50% of its previous all time high of around $50/oz in 1980. And, as I have mentioned many times, investing is not the same as trading. Trading is a short-term thing. You enter a position with the expectation of exiting it quickly. That can be anywhere from 30 seconds to 3 months depending on your strategy. Investing is a longer-term process, generally lasting years. And, I believe that the momentum in silver is just getting started and that prices are headed much higher over the next 3-5 years.

When it comes to the price action of silver, and as many analysts have pointed out, the silver market has been subject to manipulation for many years now. The commercials or bullion banks in particular, JP Morgan, have been known to hold a huge concentrated short position on Comex. If this position, which is sometimes equivalent to more than 90% of the net short position, was held in long positions, I am sure there will be something said about it.

According to the latest COT report, these bullion banks are trying once again to keep the prices down. The COT report for close of trading on Tuesday, September 14th shows that the net short position of the commercials (bullion banks) has increased to 325.3 million ounces of silver compared to last week’s net short position of 309 million ounces.  The '4 or less' bullion banks are now short 258.5 million ounces compared to 256 million ounces the previous week. According to my calculations, in the last week, as silver jumped another $1/oz these bullion banks must have incurred a “paper loss” of $256 million. But, this is chump change for them, and I wonder how much more they are prepared to lose before they begin to cut their losses.  Or do they plan to keep on adding to their net short position in a futile attempt to bring the price of silver lower. No matter what their strategy, the action in the silver market over the last few weeks has been extremely positive and I have little doubt that we will see higher prices in the future.

Long time investors are generally aware of the reason for such manipulation; a rapid rise in the price of gold and silver signals trouble in the currency markets. These metals act as warning bells alerting individuals that their wealth (i.e. the purchasing power of their currency) is being eroded by the monetary policies of bankers.

TECHNICAL ANALYSIS

The long awaited break above the former key resistance level of $18.50 gave an extremely positive sign to silver bulls. It gave a clear signal that the price of silver was set to go higher. However, the momentum of the move we have seen in the last few weeks has been more than what I anticipated. The price blew through $19.50 and then $20. It now challenges the $21 level, last seen some 30 months ago. A break through this level would be extremely bullish and I believe we could see prices move towards $30 by the end of 2011. However, in the short-term we may see some consolidation.

David Levenstein

 

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About the author
David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients.

His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa. The largest gold refinery in the world use his daily and weekly commentaries on gold.

David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.

For more information go to: www.lakeshoretrading.co.za

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.