Silver jumped to 30 month high, trading above $21 and very close to its all time high of $21.18/oz in March 2008 after the U.S. Federal Reserve's signal that it stood ready to print more money to support the economy lifted financial markets. Silver, the poor man’s gold is rising by leaps & bound on the back of rising investment demand.
The U.S. central bank said yesterday that it will continue to monitor the economic outlook and is “prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate. The National Bureau of Economic Research said Sept. 20 that the worst U.S. recession since the 1930s ended in June 2009. Still, unemployment in the U.S. may stay above pre-recession levels until at least 2013.
Key drivers for Silver price rise are, continuing safe-haven demand from an uncertain European and U.S. economic backdrop and the emergence of stronger investment demand. On the contrary, high industrial demand from Emerging markets will pave the way for price rise. The world's largest silver-backed exchange-traded fund “ISHARE” is turning bull on the commodity and started increasing its holdings since May 2010 and heading towards breaking the all time high of 9514 tonnes
Silver – Long Shadow of Gold
For the last few years silver has moved in relative tandem with the gold price up to now. We called it the ‘Long shadow of gold’ because it would rise further and fall further than gold, but they did move together. Occasionally silver did pause as gold rose but the ‘shunt’ effect [when a train pulls forward with a line of carriages in tow and each jumps forward as their links tighten] kicked in and it jerked forward to catch up with gold’s moves. Many investors keep their eyes focused on the Gold: Silver Ratio [one ounce of gold buys x number of ounces of silver] and trade it regularly. Right now that ratio is at 1: 62. However, by coupling we also mean will they continue to act and react together on a daily basis, apart from price differentials.
For the last few years silver has moved in relative tandem with the gold price up to now. We called it the ‘Long shadow of gold’ because it would rise further and fall further than gold, but they did move together. Occasionally silver did pause as gold rose but the ‘shunt’ effect [when a train pulls forward with a line of carriages in tow and each jumps forward as their links tighten] kicked in and it jerked forward to catch up with gold’s moves. Many investors keep their eyes focused on the Gold: Silver Ratio [one ounce of gold buys x number of ounces of silver] and trade it regularly. Right now that ratio is at 1: 62. However, by coupling we also mean will they continue to act and react together on a daily basis, apart from price differentials.
Silver prices are breaking out technically and it is our belief the metal will actually outperform gold in Q410 as investors look for ways to capitalize on upside potential vs the yellow metal. Throughout the gold rally seen over the past few years, silver has largely been seen as the evil stepchild of gold. However, a case can be made that investors are becoming more hip to silver’s allure, especially for portable electronic device battery technology. The growing enthusiasm for silver is most evident by the metal quietly trading near its highest level since 1980
Gold- Silver Ratio
Keep in mind the gold/silver ratio, which measures how many ounces of silver would be needed to buy a troy ounce of gold, was above 72 in 2009. Today the level is below 62. This indicates to us that at current prices investors are viewing silver more and more as an investment alternative to gold.
We'll have to travel in time back to 2003 to find a time when the gold to silver ratio was even remotely close to where it is today. In 2003, the ratio peaked for the last time at nearly 80:1. Since that time, gold has risen from $320 per ounce to $1240 per ounce. Silver, on the other hand, has risen from $4.80 to more than $20 per ounce. Silver racked up a 416% gain in seven years while gold lagged, but still beat any other market with a 387% gain.Going back even further to 1992, silver was selling for an average price of $4 per ounce while gold traded at right around $350. That puts the ratio at roughly an average of 85:1 throughout the year. From 1992 to 1998, when silver reached its recent average ratio to gold, silver soared as high as $7.80 per ounce. Gold, however, stayed moderately flat, advancing no more than 20% and ending the year of 1998 exactly where it began six years prior. Nevertheless, in 1980, the last time silver prices saw a surge before this current rally, the gold/silver ratio was only 17 so those investors still looking to jump on silver express still have time in our opinion.
OUTLOOK
Now more than ever, appreciation in silver prices is only a matter of time, nearly guaranteed as a result of a changing market structure and a sky-high silver to gold ratio. When investment bank activity shutters for good in October, expect a surge in prices never before seen. Silver's previous seasonal autumn runs will look like blips on the radar, and many investors are positioned well to become filthy rich on the climb. If you haven't already, consider swapping a portion of your gold bullion holdings for physical silver, as history is on your side.
Now more than ever, appreciation in silver prices is only a matter of time, nearly guaranteed as a result of a changing market structure and a sky-high silver to gold ratio. When investment bank activity shutters for good in October, expect a surge in prices never before seen. Silver's previous seasonal autumn runs will look like blips on the radar, and many investors are positioned well to become filthy rich on the climb. If you haven't already, consider swapping a portion of your gold bullion holdings for physical silver, as history is on your side.
With silver being less liquid than gold, investing in silver could be a more strategic way to capture a larger return in the precious metals space. If silver prices are gaining upside momentum and industrial demand is still fragile, silver could see robust demand for investors when this recession finally shows signs of being over.
At COMEX, Silver is expected to create new highs and trade around $23 in near future. Therefore, I advise to buy MCX Silver around 32300 and hold for 2-3 months for 10% upside for the target of 35500.
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