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An old melody advises us to look for
the silver lining whenever dark clouds appear in the blue. There is economic
and political upheaval all over the world, especially in the South China
Seas. This may directly affect the world's supply of industrial metals such
as graphite, rare earths, molybdenum and tungsten.
Today we direct our attention to an
area where silver is shining. Poor man's gold may come into prominence
shortly and provide our subscribers with possible profits.
The silver battlefield is filled with
bulls and bears fighting for dominance. Recently, the poor man's gold has
dropped to the $26 area. The struggle continues between the opposing sides.
The bulls and bears are keeping their eye on this critical support level at
2011 lows.
We sense that the bulls will prevail
at this mark. The reasons to buy silver now is compelling. The U.S. dollar
may have already reached an interim top as investors realize that the
employment situation in the U.S. is still a concern and that the Federal
Reserve will need to implement some form of QE3 to devalue the dollar to pay
off soaring deficits and promote inflation possibly announced at the end of
this month in Jackson Hole.
The bears disagree and claim that
silver will be pushed back beneath this level as silver plunges to new lows
as the Fed continues to keep its trigger off of the QE3 bazooka and wait
until after the election. Silver is holding the line making a rounded bottom.
Notice the rounding bottom signaling a potential breakout as sellers become
exhausted.
On the supply side, silver production
comes mainly from Peru and Mexico where miners are facing significant
challenges including violence. Newmont is having to
deal with violent protests in Peru which reminds us of what Fortuna Silver
had to deal with in Mexico. Right now, Pan American Silver is suspending
investment in its flagship Navidad Project due to
the rising resource nationalism in Argentina. Pan American paid $500 million
for the asset in 2009. This project may be the richest undeveloped silver
deposit in the world.
Similarly, Bolivia and Evo Morales is considering nationalizing South American Silver's(SAC.TO) large undeveloped silver project amidst
violent indigenous protests. The company describes it as "one of the
world's largest undeveloped silver deposits." The company is planning to
invest over $50 million into the project. At the same time the Bolivian
peasants have violently kidnapped five workers from the project.
Such turmoil in Peru, Mexico,
Argentina and Bolivia may add to the world's already existing shortage of
silver. This supply crunch is combined with rising political uncertainty in
Egypt, Syria and Iran and economic malaise in the EU and the United States
which is causing investment demand for silver to rise
exponentially.
All signs are pointing to a possible
global inflation which could propel silver prices higher. We have record
deficits in the U.S. where many citizens are looking to protect their savings
from a potential devaluation to pay down record debts. With the recent Obamacare Supreme Court Ruling entitlement spending will
soar.
Former Federal Reserve Chairman, Alan
Greenspan noted in 2010 that "Only politically toxic cuts or rationing
of medical care, a marked rise in the eligible age for health and retirement
benefits...or significant inflation... can close the deficit."
Remember, in response to Keynesian
pump-priming inflation threatens to make silver increasingly attractive as a
safe haven. There is always the presence of increased industrial demand for
the poor man's gold. Silver is being used increasingly in high tech
applications from batteries to solar panels.
Last month the silver etf's added 293 metric tons of this valuable metal to
their holdings which represents their highest inflows since September. The
bears claim that silver's proximity to the $26 line is a negative signal and
are pushing below their 50 and 200 day moving averages on the way to $18.
Recall that silver is volatile and
moves up or down more than other commodities such as gold. On the other hand,
QE3 if it is implemented will encourage monetary easing internationally and
thus will boost silver prices.
After
QE2 we called the silver breakout to the day on 8-25-10.
Silver soared from $18 to close to
$50 outpacing other commodities. If QE3 is carried out, silver could
experience a similar type of move. In such an event, the specter of inflation
may trigger silver's rapid ascent into new all time
highs. We regard silver as a long term holding which may be ready to move
into new all time highs past $50 depending in part
on the Fed's next move.
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