Silver Is a Winning Investment

Wednesday the precious metals and energy markets took a beating, and just when we thought a long-awaited correction was underway, Thursday dawned.

Before we could say, "one hundred and eighty degree turn" gold shot back up by almost $17, silver closed at $15.87, up by almost 4% and oil crawled back to $69 a barrel.

Our friends at Casey Research shared explanations for Wednesday's action and it all made perfectly good sense to us.

With silver off about 4%, twice as much as gold, the Hightower Report had this to say: “The silver market seems to have made even a more definitive failure pattern on the charts than the gold market. Clearly silver and a host of physical commodity markets were undermined by the recovery in the Dollar but given the sharp slide in equity prices, it seemed as if a number of markets were feeling the influence of a dip in economic sentiment.

Like gold, it is possible that overbought technicals prompted a number of silver longs to exit ahead of an anticipated volatility event in the financial markets at the end of this week.”

What that “volatility event” might be, we’re not sure, but it perhaps refers to the unemployment numbers for May, due out tomorrow. There’s a lot of fear that if the newly-jobless exceed the expected 520,000, that will be strong evidence that the economy hasn’t bottomed yet. Those who bought silver recently because of green shoots could easily be persuaded to pare back their positions.

Tom Pawlicki, of MF Global, is unfazed concerning gold. “The market is certainly overdue for a downside correction,” he wrote. But, “Longer-term, we still see the market as being supported, with an advance above $1,000 an ounce possible over the next few weeks. Support will come from weakness in the dollar and from ongoing inflows of investment to commodities.”

And James Turk’s opinion is unchanged. The founder of GoldMoney.com said yesterday that, “Gold has traditionally done well during periods of inflation and I believe we are entering a period of hyperinflation … We are going to see clear signs of inflation by the end of the year. The Federal Reserve is trying to destroy the dollar to save the economy.”

So who should we give credit to concerning Thursday's complete reversal? I'd like to give some of the credit to Atlas Pipeline Partners (APL) which soared 15% on almost 3 times normal volume, but alas, all they did right was to announce its joint venture with Williams Company (WMB).

Goldman Sachs (GS) gets a lot of credit because it boosted its forecast for benchmark crude based on expectations that the economy will stabilize and OPEC production cuts will shrink global supplies. It now expects oil to cost $85 a barrel by the end of the year, up from its previous estimate of $65 a barrel.

Nevertheless, experts say the market is filled with more enthusiasm than is warranted by the huge surplus of petroleum in the U.S. How do we know there's a huge surplus?

On Thursday, the Energy Information Administration said the country's supply of natural gas rose more than expected last week to 2.34 trillion cubic feet. Natural gas is a major energy source for power plants, and the bloated inventory is a sign of how much manufacturers and other industries have slowed down. Natural gas prices stayed flat at around $3.77 a BTU.

"It's certainly hard to see anything in the fundamental numbers to support" higher crude prices, said Michael Lynch, president of Strategic Energy & Economic Research. "The psychology has shifted, and people seize on the bullish news and ignore the bearish news."

The usual suspects (including deflating confidence in the US dollar) helped precious metals prices go higher, and I'm beginning to think that gold might want to test the $1,008 level fairly soon. In that case silver might take a run at $17 an ounce.

Silver, which has topped gold and platinum to become the fastest rising precious metal this year according to MarketWatch, who claims silver has a chance to keep on outperforming thanks to its double use as both an inflation hedge and industrial material, analysts are forecasting.

But as they also pointed out, with higher returns come greater risks. Silver has proved much more volatile than gold, partly because fewer people trade the white metal than gold.

If "prices of precious metals turn higher across the board, silver will tend to move up faster," said Neil Meader, research director at London-based precious metals consultancy GFMS.

"If all the prices come off, you will see silver prices collapse much faster," he said.

When you have the chance take a look at a comparative one-year chart between the Gold ETF (GLD) and the Silver ETF (SLV) on Yahoo! Finance. SLV, if purchased near its 52-week bottom last fall has been stellar.

The London fixing, a global benchmark for silver's spot trading, has rallied nearly 50% this year to near $16 an ounce, the highest level in 10 months, as investors piled into coins, bars, and silver exchange-traded funds such as iShare Silver Trust. Holdings in iShare Silver ETF hit a record high this week.

The year-to-date gain in silver easily outpaced gold's 12% advance and has also outrun platinum's 30% increase.Past experience has taught us all that silver can also do a sudden reversal and fall so fast it can leave us breathless.

Yesterday I interviewed David Christensen, the CEO of closed-end fund ASA Ltd. (ASA) which is back to $70 a share with its over 4% upward move today.

It was a very informative interview and I'll be writing an article about it within the next few days. The ASA story is well worth reading about and I'm more convinced than ever the fund has a positive future ahead.

The kind of volatility we are seeing the past couple of days shows what an atypical year this has been for energy and the precious metals sectors. Oil, gold and silver have been very good investments over the past 7 months...but of the three, the winner is silver.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

Disclosure: I'm long APL and SLV, and I just recently sold my position in ASA with the hope of buying it back after (and if) it corrects this summer.

Comments

[buyforeclos...:]

gold and silver stocks taken out to the woodshed big time!


But sure any of em would have been great buys at lows


but NOBODY was saying to buy them then and now with gold at 936 and silver at 14.25 you people are saying buy.. Kinda like Jim Cramer waiting until stocks triple to issue a buy...

Om looking at some gold AUY and silver PAAS/SLV right now after pullbacks....where were you when auy was at 3.50??/

Jun 19 05:43 PM