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It’s not too late to buy silver, but this train is leaving the station…
So you better get moving very soon if you want a piece of the surge that’s coming in silver.
You see, parts of the silver futures market are still in backwardation. It’s not as bad as it was when I initially told you about it on August 8, but it’s still there…
Backwardation is a pricing anomaly that occurs when the current cash price of the physical commodity is higher than distant contract prices.
In other words, it’ll cost you more to buy silver today than it would to buy a contract to buy silver a month from now, or a year from now.
As you read this, the silver futures market is all over the map. This tells me traders and investors alike are scrambling to buy the white metal.
For instance, as of this writing, the current cash price for silver (as of the close on Friday) is $30.75 an ounce.
You may remember that on August 8 of this year, I brought to your attention silver’s backwardation.
On that day the price of silver was $28.16 an ounce.
I ended my report that day with this:
As a holder of silver bullion, I am betting this situation will be so lopsided in the coming weeks and months that I will wait for at least several dollars’ backwardation before I consider selling my silver or my silver miners.
It’s been two and a half weeks since I published that prediction, and in that time the price of silver has risen 9.2%.
Take a look:
Not a bad gain, considering it all happened in two weeks’ time.
From a purely technical/chartist analysis, the rally in silver (and in gold) is just beginning, because there’s still some backwardation occurring in the futures market.
The September 2012 silver contract closed Friday at $30.62. The October 2012 closed at $30.65. The December 2012 contract closed at $30.70.
So silver futures for the rest of 2012 remain in backwardation. This is extremely bullish.
The January 2013 contract closed at $30.73.
When you go to the end of 2014 through 2017, silver futures are in backwardation.
Remember what I said in my initial report on August 8: Backwardation occurs because there’s a current shortage of physical silver available to purchase on the open market.
In other words, holders of silver bullion are hoarding.
Read that again: Investors who own silver are not selling. They are hoarding.
(More on that in a minute.)
Recently Jim Rogers, one of the greatest living commodity traders on the planet, explained why if he could only buy one commodity this summer, it would be silver.
Silver is the only major commodity not to have reached a new all-time high in this bull market; silver is still cheaper than it was 32 years ago, prices are astonishingly depressed.
Then you can consider the impact of an economic slowdown on silver. Yes its industrial use will go down but so will its production because that is linked to the output of copper and zinc mines.
Investment demand for precious metals will take over in any case from industrial demand. And once the gold price heads up then silver will follow. You get 50 times more silver for your money than gold.
Historically it was 12 to 15 times the amount of silver for gold. Why is it that silver has become so cheap by historical standards?
It goes back to the price collapse of 1980. Prices then got to such a huge spike due to the cornering of the market by the Hunt Brothers that production was ramped up and huge stocks were accumulated. The Hunts market manipulation invited a similar response from global central banks.
Once silver prices slumped from $50 there was a 20-year bear market with enough oversupply to keep prices down for two decades. Silver’s recovery since the millennium has been spectacular, from $3 an ounce to almost that previous all-time high 15 months ago.
In addition to the technical picture, the fundamental view is bullish, too.
The latest Fed minutes suggest the central bank is ready to begin another round of quantitative easing. With Ben Bernanke warming up the printing press, the smart money has been getting ahead of the upward move coming in gold and silver…
Nick Hodge told you last week about the epic gold-buying binge by billionaires George Soros and John Paulson. It bears repeating, because this is a significant market development.
You see, there’s never been a time in my investment career (spanning nearly 20 years) that the “global financial elite” have owned so much gold and silver.
Typically gold and silver buying has always been done by the “gold bugs” — the paranoid fringe segment of our investment population that’s been often dubbed “grumpy, old white men.”
But now it’s the zenith of global finance — as well as central banks the world over — that are gobbling up precious metals like a hippie on a week-long weed bender.
It was recently reported that billionaires George Soros and John Paulson have purchased three-quarters of a billion dollars of gold.
Global central banks were net buyers in the second quarter of this year of 157 metric tons of the yellow metal. And they seemed to have bought at a critical point and moment.
According to U.S. Global Investors fund manager Frank Holmes, gold is signaling a major buy alert.
There’s been a lot of discussion from market pundits wondering where gold is heading. I say investors should use math to their advantage. Similar to card counting strategies used by blackjack players, count historical trends to discover inflection points.
Gold appears to be at one of those inflection points right now. Using the last 10 years of data, if you plot the 12-month rolling return, you can see that gold has reached an extreme low, registering a -2 sigma.
The last time gold reached this point was in August 2008.
You can see below the yellow metal’s significant climb after hitting that standard deviation low.
Just recently, the gold price has moved above its 50-day and 100-day moving averages, which is another indication of potential strength for the metal and an additional reason to believe that gold may be an attractive entry point.
Based on the historical move from 2008 to 2011, gold could reach in excess of $2,500 an ounce, maybe more.
Silver would likely move above $50 an ounce, easily.
And I don’t think it’ll take four years to reach those levels. When QE 3 is announced, there will be a rush into gold and silver.
You have to wonder what Soros, Paulson, and global central bankers see on the horizon for them to be big buyers of bullion…
I suggest buying silver and silver miners right now.
– Brian HicksSource: Wealth Daily
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