Silver - The Opportunity Of A Decade

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Includes: AGQ, DBS, SIVR, SLV
by: Patrick MontesDeOca

Looking to invest in a popular, yet extremely volatile market? Try silver.

The silver market can make - and destroy - fortunes in a very short time.

Even so, if you are looking for the greatest profit potential and volatility in a trading instrument, silver could be the best investment opportunity of the past decade, according to Eric Sprott of Sprott Asset Management in an interview we published in Seeking Alpha in September 2011.

As we move towards the end of 2012, we can clearly see, according to Stephen Roy, Chief Technical Analyst for the Equity Management Academy, that "The evidence is clear that investment, not industrial demand, is behind the solid physical buying recently."

Last month, Thomson Reuters GFMS reported that investment demand will likely be the prime driver of silver prices this year.

The precious-metals consultancy's forecast predicted that net investment in silver would jump 82 million ounces to 234 million in 2012 compared to 2011, even as demand for silver in industrial applications is expected to fall nearly 28 million ounces. Read more on the Thomson Reuters GFMS report.

Investment interest is also shown in holdings of silver global exchange-traded products, which - at around 600 million ounces as of Nov. 23 - were close to an all-time high, according to ETF Securities.

"Current investors in silver now have survived a parabolic rise, a subsequent plunge in price and some extremely dramatic wide trading ranges," reported Thomas Reuters. That means "current owners of silver are very solid, committed, long-term investors."

Following recent declines, silver may be at bargain prices, too.

Silver is increasingly seen as an undervalued asset and its strong consolidation levels around $30 to $33 are seen as a buying opportunity by many. As more people become aware of the multiple aspects of demand for silver - from industrial to monetary - the silver market once again will become accepted in the financial community as an investment in a similar vein as gold. As more analysts begin to look at silver, the market may be acknowledging the scarcity and affordability of silver in comparison to gold.

Developed countries are debasing their currencies, while emerging markets are buying gold and silver, which also suggests an upturn in silver in the long term.

By the end of 2012, central banks probably will have purchased more than last year's record 457 tons, with emerging market buyers such as Russia, India and Turkey setting the pace. Read more about central banks' demand for gold and silver.

Let's take a look at the weekly nearest gold and silver futures charts, and see what the technical forecast looks like for next week.

Gold

The gold contract closed at 1705. The market closing above the 40 day MA is confirmation that the trend momentum remains bullish. With the market closing below the VC Weekly Price Momentum Indicator of 1723, it confirms that the price momentum is bearish. Look to take some profits, if long, as we reach the 1723 and 1741 levels during the week. Buy corrections at the 1685 to 1665 levels to cover shorts, and go long on a weekly reversal stop. If long, use the 16 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).


Click here to enlarge chart

Silver

The silver contract closed at 33.16. The market closing above the 9, 18 and 40 MA is confirmation that the trend momentum is bullish. With the market closing below the VC Weekly Price Momentum Indicator of 33.14, it confirms that the price momentum is bearish. Look to take some profits, if long, as we reach the 33.76 and 34.46 levels during the week. Buy corrections at the 32.44 to 31.82 levels to cover shorts, and go long on a weekly reversal stop. If long use the 31.82 level as a SCO/GTC (Stop Close Only and Good Till Cancelled order).


Click here to enlarge chart

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Additional disclosure: TRADING DERIVATIVES, FINANCIAL INSTRUMENTS AND PRECIOUS METALS INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

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