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No good news to deliver
so far this year on the eurozone. Just this week
Slovakia’s government became the first in the eurozone
to fall over opposition of bailing out indebted economies after the
country’s parliament voted down approval for enhancing the zone’s
rescue fund. Also this week, Jean Claude Trichet,
European Central Bank President, warned that Europe’s financial crisis
has reached “a systemic dimension.” Greece has continued to
dominate the headlines and is facing a fifth successive year of recession and
a possible sovereign default. Italy, Spain, Portugal, Ireland and even France
have seen their share of headlines. Over the course of the year we have seen
several instances where bad news about the euro boosted gold prices.
Sovereign balance sheets resemble an overweight diabetic on the verge of a
heart attack, wrote Pimco’s Bill Gross in his
recent letter to investors.
At the beginning of the year many investors were of
the point of view that after years of delivering gains, bonds might not be
such a great investment idea for 2011 since there is a distinct risk that
long-term interest rates might rise, which would spell trouble for
bondholders. They were wrong, but they were in good company. The person who
took the biggest hit for making the wrong call on bonds is the world’s
greatest bond trader, Pimco’s Bill Gross, who
advocated dumping government debt because of low yields. Instead, investors
have been pouring their money into U.S. Treasuries all year as a safe haven.
Due to Pimco's wrong-way bet, the once leading bond
fund is up just 1% this year, trailing the returns of a whopping 84% of its
peers. Recently Bill Gross has made a U-turn and has placed a big bet on
lower long-term interest rates.
Housing is a key driver of expansion during economic
recovery but in January we thought that it looked like home building will
remain in a depression with a huge backlog of unsold and vacant homes.
Foreclosures will continue with yet more houses dumped into a weak market.
That has proved to be the case so far this year. The Standard &
Poor’s/Case-Shiller 20-city index of prices
has fallen back to where it was in 2003. Housing prices in Phoenix are at
2000 levels, and Las Vegas at 1999 levels. Lower prices have made homes more
affordable than they’ve been in a generation. But mostly it’s
still a vicious cycle of foreclosures and falling prices. There are still
many people who have negative equity — they owe more on their mortgages
than their homes are worth-- so that millions of more foreclosures are still
in the pipelines.
Recently, there
has been much talk about where gold is going now. This have pushed silver a
little bit to the side, which we don’t think is quite fair. Because of
that, we devote our today analysis solely to the white metal. We will start
the technical part of this essay with the analysis of the silver long-term
chart (charts courtesy by http://stockcharts.com.)
In the chart, very little change was seen this week.
Silver’s price moved to the 38.2% Fibonacci retracement level based on
the 2002–2011 rally. Silver’s price pulled back after moving
above this level. This is likely insignificant and nothing more than a verification
of a move back above the 38.2% level. Such price action is not unusual.
 
In the short-term SLV ETF chart this week, we see a
move of interest as silver’s price declined on low volume indicating a
period of consolidation. The price level is now close to the 20-day moving
average and in the past, such moves following an early part of the rally have
typically been meant a reversal to the upside after the bottom was (shortly)
reached.
Thursday’s price decline is not really of
concern, and the situation is not bearish at this time.
In the silver to gold ratio this week, we see a
bottom developed after the rising support line was reached. Thursday’s
close was just under .02 and it appears that a rally from here is likely. The
target level is around .022. If gold’s price moves sharply higher,
silver is likely to increase to a greater extent on a percentage basis.
Summing up, the situation remains positive for silver and the
same can be said about gold.
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Thank you for reading. Have a great and profitable week!
Przemyslaw
Radomski
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