Since my last silver article on Seeking Alpha, I have been overwhelmed with emails requesting an update. In the article I suggested that we were nearing a bottom for silver before it begins a parabolic rally. I noted that if silver broke below the recent 29.90 support level in the futures, then the most likely bottom for silver would be the $26 region, with the potential to drop even as low as the 22.50 region. So, let’s see if that analysis is still applicable at this time.
The U.S. Dollar has had an extensive rally since I wrote back in June of 2011 that we were nearing a significant bottom in the USD. However, I do not consider this second leg up in the dollar as the start of the major rally which I think will take the USD up to the 90 region in 2012 / 2013. Rather, I believe that the USD is at a cyclical turning point, and will experience a potentially sharp pullback, which may take us through the 1st quarter of 2012. However, there could still be one final push up in the USD index before that correction begins. The upcoming pullback will most probably relieve some of the downside pressure on the precious metals, which will allow silver to enter into a parabolic rally into the 1st quarter of 2012.
Cyclical Turning Point
I still believe that silver is entering a cyclical turning point in which it should begin a significant, but final, rally. The next few months are traditionally quite bullish for the metals.
Update of Prior Analysis – Forecast for Silver
In August 2011, I suggested that silver was about to experience another dramatic decline. I provided downside targets of the $26.50-$26.80 region-- and, if broken-- suggested that silver can drop to the $22.50 region, which should provide the needed support.
In my opinion, silver is about to complete its corrective decline and should maintain support within the $26 region in the futures. However, there could still be some weakness in the price over the coming days. Scaling into silver on its next pullback will probably prove to be a smart move. There is still the outside possibility that silver can spike down as low as the $22.50 region, but that will be a very short lived visit to that region, if at all, and would represent an incredible buying opportunity for those smart enough to buy that drop.
As I also explained in my last articles, if we found support within the cited region, then you would want to consider buying silver for a run to at least the $50 level. Furthermore, based upon my analysis, I believe that the speed with which we will run up to the $50 region will surprise even the staunchest of precious metal investors.
Although we will most likely exceed the $50 region, as we move into this potentially parabolic rally we will be able to pin down the target top better, in order to exit our trade when we hit what I expect to be a multi-year top. The ensuing correction may make the current correction look like child’s play.
Disclosure: I am long SLV.