Silver Rally: What’s Going On?

| January 27, 2012 | 0 Comments

Have you noticed the trading action in silver lately?

The white metal is kicking off 2012 with a bang.  In fact, it’s up 24% since the start of the year.  That’s a sweet short-term rally no matter how you slice it.

What’s going on?  Why are investors suddenly so interested in silver again?

After all, the precious/industrial metal suffered a brutal sell-off in the second half of 2011.  What’s more, a good share of Wall Street analysts recently turned bearish on both silver and gold.

They suggest both these metals have nowhere to go but down.

Yeah, right…

These guys are either intentionally misleading retail investors or they’re flat out stupid.  The fundamentals for silver have never been stronger. Asian and Indian investment demand is through the roof, while global industrial demand remains in a steady long-term uptrend.

Now, I can hear you asking, “If that’s the case, why did silver prices collapse last year?”

It’s a great question…

So why did silver prices collapse last spring?

The CME raised margin rates through the roof in late April 2011.  They wanted to clamp down on excessive silver speculation.  Of course, that was after the metal had surged to just over $49… up 177% from its mid-2010 price of $18 an ounce.

Long time readers know, I wrote an article in mid-2010 about an impending silver price breakout… before the metal made that historic move.

But the aggressive action of the CME caused a stampede of selling in May 2011.  Silver traders big and small ran for the exits.  They knew the CME’s sudden action would set off a cascading short-term wipeout in the silver market.

But that was then, and this is now…

After dropping 46% from those April 2011 highs, silver is starting 2012 on the right foot.

As you can see, silver popped off the green support trendline in the last few trading days of December.  The bullish momentum is carrying through into 2012 as silver’s currently pushing above $33.

And this is just the beginning…

The recent rally is the start of something much bigger for silver in 2012.

Why am I so bullish?

One thing’s for certain, the long-term technical picture is still very bullish for silver.  And not only that, but Ben Bernanke pretty much just sealed the deal for higher prices this year.  He recently announced the Fed’s keeping interest rates at record lows through 2014.

That’s a change from last year when he said rates would stay at or near 0% through 2013.

What’s it mean?

Bernanke’s creating the breeding ground for inflation.

In fact, some traders are calling the Fed’s recent move a sneaky version of QE3.  The reaction of the US Dollar index to the news pretty much tells the story… it got creamed.  And as you may know, a falling dollar’s very bullish for commodities- including silver.

How high could silver go?

I’m looking for prices to rise to the $37 area (red resistance line) over the next few weeks.  At that point, we may see a bit of technical profit taking.  But in coming months, silver’s likely going to break well above that down-trending red resistance line.

In fact, I wouldn’t be surprised to see silver retest the $50 area sometime this year.

How can you take advantage of the coming rally in silver prices?

There are a number of great ETFs that track the price of silver.  The iShares Silver Trust (SLV), Sprott Physical Silver Trust (PSLV), and ETFS Silver Trust (SIVR) are all viable options for investors.

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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