iShares Silver Trust (SLV) has had a huge investment influx as of late and 2013 American eagle coins are bought out. Why? There still is some fear from the debt ceiling but I believe it may be a combination of two things. We have the movement of the gold bullion to Germany and we have the new industrial and manufacturing reports giving us better pictures of the economy.
The Federal Reserve reported that in December industrial production and capacity utilization increased. It rose .26% from a month earlier and 2.25% from a year ago. Both production levels are still below 2007 levels and continue to support a slow (very slow) recovery taking place. Rebounds in housing, the auto industry and business investment combined with stabilization in global growth will probably support gains in manufacturing into this year. SilverPrices.com Editorial team did a nice article last year about silver's industrial demand when they wrote:
"Industrial processes or appliances such as solar panels, batteries of cell phones, laptops require silver as a raw material. Such technologies that have a strong future make silver more important and needed than ever. In addition to the large scale industries that require silver, our day-to-day life also needs silver as our refrigerators, washing machines, air conditioners and water purifiers use silver as a sanitizer. According to the experts of the silver industry, more and more industries such as hospitals and big organizations are now switching to silver-based filtration systems rather than using chlorine."
As a precious metal, it may not get as much attention as gold, but as a combination precious metal and multifaceted industrially used metal, it rises in value as manufacturing increases.
What Are Industrial Commodities?
These are bulk goods that can be traded within an industrial market. Some common types of industrial commodities include: metal ore, fossil fuels, textiles, and foodstuffs. The trading of industrial commodities is central to the manufacture and availability of goods. Most industrial commodities are goods that are similar or identical regardless of the source; for instance, copper ore that is considered a commodity will have identical chemical and metallurgic properties, regardless of the source and method of extraction. These commodities rise in value as manufacturing increases.
As for Germany…
It will take a couple years to ship 647 tons of gold from New York and France to Frankfurt. Why are they doing this? It will bring more gold home creating a better sense of stability. Germany recently has been gripped by the sort of gold paranoia that also affects some Americans. But Germany's history of hyperinflation, world wars, has the nation a little on edge sometimes and bringing the gold home helps ease the population about a stable government. Do they have gold to create a stable government currency? It uncertain times, these answers bring some certainty to the situation. And I believe it is this uncertainty that has helps suddenly lift silver.
There is no doubt that silver is in a bearish peak and valley pattern. It started the latter half of September and looks like it continued to this day. The recent lows have continued lower; in fact the last low signaled an over sold position in the RSI indicator. I am not sure if the recent high is done though, and if not, it may signify a breakout. The MACD MAs are still moving up and spreading while the RSI looks like it will also continue to move up. It is at the top of the Bollinger band, but it could continue higher reaching the next resistance level. So it looks like it is not finished moving up but I am not sure that means the stock is done moving down.
The Options Play
I believe silver has enough momentum to continue moving up. The stock is presently trading at 30.98.
- Buy the March 2013 call with a strike of '31' (priced at $1.09)
- Sell the March 2013 call with a strike of '32' (priced at $0.67)
- Net Debit to Start: $0.42
- Maximum Profit: $0.58
- Maximum Risk: net debit
- Maximum Length of Play:
Reason behind the Trade
- Bullish momentum will continue so trade the trend
- Good economic news, if it continues, should keep the bullish momentum for a time
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.