Is $22 Silver Possible?

Includes: AGQ, SLV
by: Avi Gilburt

For the last several weeks, I have commented on some of the commonly and staunchly held "fundamental" reasons investors believe silver will move one way or another. So far, we have discussed the "market manipulation," "Fed controls the market," and "correlation" perspectives. We have come to the conclusion that if you had traded or invested lately based upon any of these "common" perspectives, you would have had your hat summarily handed to you.

Today, I want to discuss the belief that silver is a risk asset because it is has a significant correlation to manufacturing, and does well when the markets and economy do well.

Well, in truth, I do not subscribe to the "correlation" argument, which I addressed last week. Additionally, I do not see metals as either a risk asset or a safe haven. Again, as I have said so many times in the past, if you attempt to pigeon hole the metals into any type of "category," then you are limiting yourself in being able to see what really moves the metals, and that is sentiment.

Yes, our goal over the last year was to break down the commonly held beliefs and uncover them for what they are - pure fallacy. They will only misdirect and mislead you. In fact, all those viewing silver as a risk asset, similar to the equity markets, have been exceptionally disappointed, as have all the adherents to all the other commonly held beliefs about the metals!

If you look at the recent strong rally in the equities, you will clearly see that silver has had no part of it. But, if silver does well with the rest of the market due to its supposed manufacturing utilities, why has it not rallied as well? I will tell you why. It is because its pricing is not based upon such correlations and it is not a "risk asset."

I am hoping that, one day, the readership here at Seeking Alpha will finally open their eyes to the fact that all the commonly held perspectives as to what moves silver are breaking down before their eyes. There is no single perspective that can consistently and accurately explain the moves in the metal over the last two months - other than the one we have been espousing for as long as we have been writing for Seeking Alpha. That is simply that sentiment is what moves the metals, and nothing else.

What is even more difficult for the readership here to believe is that not only is silver just moved by sentiment, but you can also chart it, and even identify where it will go, often to the penny, using Elliott Wave and Fibonacci mathematics.

For those that still do not believe me, allow me to recap the market action we have called for over the last several months.

Due to my wife's illness and ultimate passing, I had to take time off from writing on Seeking Alpha. But I began writing soon after, making very specific market calls. In fact, I have not seen a single other author on Seeking Alpha who will actually go so far as delineating very specific levels for targets in silver the way these articles have been written.

But, back in November, in the first article I wrote after my wife's passing, I stated very clearly that:

... there still seems to be several up/down movements which we may see before any significant rally is yet to be seen. For silver futures, I am looking at a potential move up to the 34.40 region before it comes back down to the 29.70 region.

Well, when I actually wrote the article, the silver futures were trading at 32. It then began a rally, which stopped right at the 34.49 level. So, I guess my target was off by 9 cents. But, I promised to do better next time.

Silver then began its expected decline, and recently bottomed at the 29.67 level, which means my target was now only off by 3 cents. I guess I did a little better. But, what is truly significant about that market call was that it was made before the Fed made its announcement of further QE, yet, the market topped right at our target and began to decline 15%. This, clearly, was not what market participants had expected, especially after such a seemingly bullish announcement.

So, I then wrote a follow up article, which suggested that we can see a move up in silver to the 31.60 region (31.53 was the recent top, so I missed this one by 7 cents), to be followed by a decline to at least the 28.67 level, with the potential to hit even lower targets. Well, we are currently in that decline, and I still expect silver to hit at least the 28.67 level at this time.

Yet, for those that want to hold steadfast to the old erroneous paradigms that lately have clearly proven to be beyond unreliable, you only do so to your detriment. If you would open your minds to perspectives beyond "manipulation," the Fed, seeming correlations, and labels such as risk assets or safe havens, and, rather, focus on what actually moves metals, and how to truly track such movements, then you would be doing much better than you probably are now by adhering to these fallacies.

But, for now, I want to repeat the analysis that I provided in my last article, as it is still quite applicable:

The current consolidation is simply just that a consolidation before we head to lower levels. While it is yet possible that we can see a rally over the next week or two up to the 31.60 region, my expectation is that any rally should be capped below the 31.65 level, and will be followed by a decline to at least the 28.67 level, with potential extensions to the 27.98 and 26.87 regions. It will be the pattern with which we begin such decline that will tell us at which of these targets silver will find its next level of support. The deeper the decline, the more likely it will be that silver will ultimately be breaking down below the 26 support region.

So, we are expecting a bottom very soon, which can complete this entire longer term correction. And, depending upon which of the levels we bottom at (28.67, 27.98 or 26.78), we will look for different levels to be our first signal for the beginning of the expected parabolic rally. But, as long as silver cannot move beyond the 31.50 level on strong volume, 22 is still a possibility.

(Click to enlarge)

Disclosure: I am long SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I have large intermediate term put positions as well