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As I write this report on the last holiday weekend of 2012, I am finding a very strong case building for the silver market as we head into 2013. One of the reasons is the gold to silver ratio seems to be indicating that smart investors are buying silver on a 3:1 ratio.

With the current ratio at 55:1, the numbers are telling us that the smart money is buying silver at a ratio to gold that is well above the availability of silver.

According to Eric Sprott (Sprott Asset Management), "How long can investors continue to buy silver at the current ratios when the availability for investment is only 3:1? We are surprised that the price of silver has remained at such a depressed level compared to gold. Historically, the price ratio between gold and silver has been 16:1, when both were currencies. Today the ratio is 55:1, so what are the numbers telling us? We believe this is one of those times when smart investors will be well rewarded to "Follow the money."

On my last interview with Eric Sprott, I asked him if he still feels silver is the best investment of this decade.

"I absolutely do," he said. "And the one thing that most strikes me when I look at, for example, the US Mint web site, and I look at the dollar value of gold sold and the dollar value of silver sold, and I see that investors bought as many dollars of silver as gold, which means they bought 50 times more physical silver than they bought gold because the price is over 50 to 1. But when we look at production of silver, there is about 11 times more production of silver than there is gold, but half of silver's production goes to industrial production, whereas almost all gold production is for savers, which then takes a ratio of about 6 and a half ounces of silver you can buy every year for investment versus one ounce of gold but people are buying it 50 to 1."

Source: US Mint (usmint.gov)

Average annual gold mine production is approximately 80 million ounces, which together with an estimated average 50 million ounces of annual recycled gold, totals around 130 million ounces available per year. In comparison, annual mined silver production has averaged around 750 million ounces, while recycled silver is estimated at 250 million ounces per year, which adds up to approximately 1 billion ounces. Using this data, there is roughly 8 times more silver available to buy than there is gold. However, not all gold and silver is available for investment purposes due to their use in industrial applications. It is estimated that for investment purposes (jewelry, bars and coins), the annual availability of gold is roughly 120 million ounces, and of silver it is 350 million ounces. Therefore, the ratio of physical silver availability to gold availability is 350/120, or ~3:1.1

The majority of analysts are now of the opinion that gold will reach a parabolic peak price somewhere in excess of $5,000 per troy ounce in the next few years. Given the fact that the historical movement of silver is 90 - 95% correlated with that of gold suggests that a much higher price for silver can also be anticipated. Couple that with the fact that silver is currently greatly undervalued relative to its average long-term historical relationship with gold, silver could escalate dramatically in price over the next few years.

The CPI-adjusted silver price indicates that silver should be trading at $122 per ounce. In looking at the long-term chart below going back to the 1720s, we can come to the conclusion that silver prices currently trading around $30 per ounce are offering what could be a historic buying opportunity.

Let's examine the weekly continuation charts for gold and silver futures contracts as well as a select group of precious metal ETFs and see what we can look forward to as we start the new year of 2013

Gold
The gold contract closed at 1655. The market closing below the 50 MA is confirmation that the trend momentum is bearish. With the market closing below the VC Weekly Price Momentum Indicator of 1659, it confirms that the price momentum is bearish. Look to take some profits, if long, as we reach the 1663 and 1.672 levels during the week. Buy corrections at the 1650 to 1.646 levels to cover shorts, and go long on a weekly reversal stop. If long, use the 1646 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

Silver
The silver contract closed at 29.92. The market closing below the 50 MA is confirmation that the trend momentum is bearish. With the market closing below the VC Weekly Price Momentum Indicator of 29.99, it confirms that the price momentum is bearish. Look to take some profits, if long, as we reach the 30.14 and 30.36 levels during the week. Buy corrections at the 29.77 to 29.62 levels to cover shorts and go long on a weekly reversal stop. If long use the 29.62 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

ProShares Ultra Silver ETF (NYSEARCA:AGQ)
The ETF contract closed at 43.42. The market closing below the 50, 200 MA is confirmation that the trend momentum is bearish. With the market closing below the VC Weekly Price Momentum Indicator of 43.54, it confirms that the price momentum is bearish. Look to take some profits, if long, as we reach the 44.41 and 45.93 levels during the week. Buy corrections at the 42.56 to 41.69 levels to cover shorts and go long on a daily reversal stop. If long use the 41.69 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

iShares Silver Trust ETF (NYSEARCA:SLV)
The ETF contract closed at 29.10. The market closing above the 50 MA is confirmation that the trend momentum is bullish. With the market closing below the VC Weekly Price Momentum Indicator of 29.15, it confirms that the price momentum is bearish. Look to take some profits, if long, as we reach the 29.45 and 29.79 levels during the week. Buy corrections at the 28.81 to 28.51 levels to cover shorts and go long on a daily reversal stop. If long use the 28.51 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

Market Vectors Gold Miners ETF (NYSEARCA:GDX)
The ETF contract closed at 44.93. The market closing below the 50 and 200 MA is confirmation that the trend momentum is bearish. With the market closing below the VC Weekly Price Momentum Indicator of 45, it confirms that the price momentum is bearish. Look to take some profits, if long, as we reach the 45.83 and 46.72 levels during the week. Buy corrections at the 44.11 to 43.28 levels to cover shorts and go long on a daily reversal stop. If long use the 43.28 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

SPDR Gold Trust ETF (NYSEARCA:GLD)
The ETF contract closed at 160.54. The market closing below the 50 MA is confirmation that the trend momentum is bearish. With the market closing below the VC Weekly Price Momentum Indicator of 160.69, it confirms that the price momentum is bearish. Look to take some profits, if long, as we reach the 161.34 and 162.13 levels during the week. Buy corrections at the 159.90 to 159.23 levels to cover shorts and go long on a daily reversal stop. If long, use the 159.23 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).

As we conclude this report, I want to sincerely show my appreciation to my viewers and wish all of you a Very Happy and Prosperous New Year!

Source: Silver Is Set To Explode In 2013

Additional disclosure: *Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.