Two Silver Scenarios
May 16, 2011
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RELATED TICKERS: SIL
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A friend of mine just sent me a link to this interview with Ross Clark, an investment advisor with CIBC Wood Gundy in Vancouver.
While the hosting website strikes me as cheesy for its stock-pumping ads, the content from the guest was nonetheless interesting. The link is here if you're inclined to listen to the full 23 minutes:
http://talkdigitalnetwork.com/2011/05/silver-consistent-history/
In short, he outlines two likely scenarios for the silver price based upon technical analysis of both present dynamics and past corrective phases. One scenario would see silver holding its present low of around $33 for this correction through early June, which in his opinion would set up an accelerated run to prices in the $70s likely by the end of the year. In a second scenario where we break lower to $23-$27 before finding a bottom, which by his estimation would more closely resemble past corrective moves, the move to take out $50 would then take a good bit longer (i.e. probably not this year). I bring this up not because I am convinced of one scenario or the other, but because I believe it wise to consider both as residing within the realm of possibility. To adapt to both possibilities, I am both a buyer here and also a holder of cash in reserve (though admittedly my reserves are growing slimmer than I would prefer).
Since Trader Dan sounded some bearish tones in his latest discussions, referring in particular to a key break of support in the continuous commodity index, I thought it particularly timely to remind Fools that although I believe silver purchases in this range represent strong opportunities for profit, there are no guarantees that the initial reaction low will hold as a low for the correction. Indeed, historical patterns suggest otherwise. As always, however, there are limits to the predictability of technical analysis, since enormously complex events transpiring throughout the global economy are capable of driving massive upside moves in precious metals at any given second. That is why my core positions remain untouched throughout the long-term secular move ... and why my attempts to time the market in broad strokes are practiced with only a minute portion of my overall pm exposure.
Also, keep in mind Jim Rogers' words of wisdom regarding parabolic moves, and how he welcomed this correction because otherwise he would have been "forced" to sell. The first scenario above might be interpreted as a continuation of the too far, too fast movement, whereby a scenario involving a deeper and somewhat more prolonged correction might ultimately prove the more beneficial outcome for long-term precious metal investors.
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