Wednesday, June 27, 2012

Silver Approaches a Major Price Breakdown

A quick note about the spreading weakness in the four major traded precious metals (PMs), with the focus on silver (the "people's choice" PM).  Silver is testing a triple bottom formation that begins with the January 2011 bottom (after which it almost doubled in short order).  You can see this on a futures chart or simply with SLV.  This strikes me as a sort of opposite formation to the triple top that gold was testing in late summer/fall of 2009, about which I blogged positively in several posts at that time; and, more important, personally bought the impending breakout big-time.  At that time in 2009, the received wisdom was that resistance at triple tops rarely held; usually there was follow-through on the upside.  I suspect that a similar phenomenon will hold for silver on the downside now.

Palladium (and platinum) has a weak chart that is consistent with the silver chart.  I like to focus on it as it has the least public participation in ETFs that hold it; thus it "should" be the PM most related to industrial demand.  In any case, what I find bearish is that it is testing levels that are triple the price levels that marked the 2008/9 bottom in this commodity.  I think there has been lots of speculation in the commodities that is in the process of being negated, as investor preference continues to shift to muni bonds at, say, 50X "earnings" (i.e., a 2% interest rate) or utility stocks at, say, 16X earnings and a 4% dividend payout.
 
Investors and traders also may want to be aware that ETFs serve as a vehicle for the commercial interests to get the public to pay storage costs for excess inventory of these metals.  It is not an unfair deal, and the costs are fully disclosed, but if rising commodities prices were close to a sure thing, would the commerical interests be eager to form ETFs to allow the public in on this near-sure thing?

4 comments:

  1. Ag, will reach the $23 to $24 level...If it declines beyond that, then who knows where the floor will be...

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  2. I'm targeting the winter 2008 high around $21.
    Also I see prior resistance that looks like support at gold $1400.

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  3. If you are correct, we will be long AG and SLW as well...

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