Silver and Silver Stocks Spring to Life

Includes: AG, EXK, SLV
by: Bob Kirtley

Two of our favorite silver producers led the charge yesterday, Endeavour Silver Corporation (EXK) up 9.25% and First Majestic Silver Corporation (AG) up 7.49%, as silver prices bounced $1.53/oz in the trading session.

Silver prices gained 4.37% in the trading session and look to have found some support at the $34.00/oz level, which could form the platform for a re-test of the $40.00/oz level.

Taking a quick look at the technical indicators, we can see that there is an imminent crossover on the MACD, which is usually a positive sign for silver along with the STO and RSI, both of which are heading north at the moment.

silver chart 25 May 2011.JPG

The difficulty is determining just where silver prices go from here. In the short term, we are of the opinion that silver will continue to consolidate, with some erratic moves in both directions. The months of June, July and August have been slow moving historically, and we could be in for more of the same. However, it's not a given, as many parts of the world are experiencing turmoil at the moment, either politically, economically, or environmentally. The next black swan event could make an appearance as early as this week and change the financial landscape almost immediately, just as the rapid increases in margin requirements knocked the stuffing out of silver prices.

One such event could be a similar assault on gold prices, which would no doubt have a knock-on effect on silver. However, the demand for silver, both by the industrial users and the investment community, is strong and growing as suspicion grows regarding the credibility of the fiat currencies.

Also remember that those politicians and officials who control the printing presses have different objectives than those of the retail investor. The top priority for them is to get re-elected and they will continue to buy votes with various giveaways to protect their lifestyles. It's short term-ism at its very worst and we are stuck with it. The printing presses will continue to roll, as this is all they know how to do. Currencies will leap over each other in the race to the bottom and the people will become, albeit slowly, more aware that their paper money is buying very little indeed. The dawn of this realization has begun and is gathering pace.

To avoid being totally wiped out in the coming carnage, try to move some of your wealth -- even if you consider yourself to be a poor person -- into some form of tradeable hard asset. In that respect, silver deserves some consideration. As we have said many times, the first step is to acquire physical silver coins and bars and keep them where you can get your hands on them and outwit the banking system. When the chips are down, the banks will do what governments tell them to do, regardless of our perceived rights.

The second way to get involved is by investing in a small number of quality silver-producing stocks. Some of our readers have informed us that they are unable to purchase the stocks that we have recommended due to the inability of their stockbroker to trade on a particular exchange like the NYSE. To this sort of situation we can only ask: Are they providing a service to you or are you are providing a service to them? There are a number of web-based trading platforms available to you which free you from such shackles, so wake up and take charge of your own future.

Finally, if you have a stomach that can stand violent oscillations, then the use of leverage through a well-thought out options trade could boost your account. However, be warned: Options can also knock a hole in your account just as quickly, so seek some professional advice before putting your hard-earned cash on the table.

In conclusion, we are of the opinion that despite the day to day white noise that is ever present, silver prices will finish the year at much higher price levels than they are at now. So take some time and read as widely as you possibly can, formulate your own protection plan, and start to build a position at your own speed -- before prices become a little daunting.

Disclosure: I am long AG, EXK.