Silver – Three months ago on August 8, 2016, I wrote an article titled “Gold to Thrive in a Fiat Ponzi with Negative Yield” in which I presented the following charts and said:
“Why would you want to own yen or euros with negative yield, when you can own gold? – the real money. As an added bonus, there is no quantitative easing (QE) with gold.
It took gold approximately 7 months to advance $250 and overcome major resistance at $1,300/oz from a bottom of $1,050. A reasonable target could be $1,550/oz ($1,300 + $250) by March 2017 – 7 months from now. Silver could follow a similar pattern with a near-term target of $26/oz.”
chart from August 8 article
chart from August 8 article
August turned out to be a short-term peak for silver. Silver staged a multi-year break out in July and is currently resting on the 5-year support trend line of $18. This is not unexpected given it had run up 50% to a high of $21 from January low of $14, while the Comex speculative long and commercial short positions were at an unprecedented extreme, some of the excess optimism had since then been worked off.
Looking ahead, I offer you the following 2, 5, 15, and 100-year silver charts and conclude the article with my near term silver price target.
The 2-year chart shows silver broke out of the 2 year resistance level of $17.5 to reach $21 in July, and has fallen back to $17.5 which is now the new support level that also happens to be the 200-day moving average (200 DMA). It’s highly unlikely for silver to fall below $17.5, with $21 as the next target level.
The 5-year chart shows the important trend lines of $18 and $26. Silver needs to stay above $18 to confirm the breakout, with the next major target level of $26.
The 15-year chart clearly shows that in early 2016 the metal broke out of 5-year consolidation that started in 2011, and is now embarking on a new phase that appears to be a major bull run. The metal subsequently broke out of a major multi-year resistance level of $19 in July 2016 and should stay above $19 to confirm the uptrend.
This 100-year chart shows the metal is now testing the important 2-decade resistance level of $20. Once overcome, the next target levels are $25 (4 star), $30 (5 star), and $35 (6 star). If history is any guide, those target levels can be reached within months after the metal definitively breaks out of the $20 level.
To quote again from my August 8 article,
“In the unlikely event that the global economy miraculously recovers and the Fed quadruples the Federal Funds rate from the current, miniscule 0.5% to say, a tiny 2% in short order, dividend stocks would crater, and US bond prices would crash with hoards of speculative liquidity and baby-boomer savings looking for a safe haven – not exactly the recipe for a gold bear market.”
Either way (hike or no hike), there is no place for the gold (and silver) bull to hide.
Technically, the bull is intact and within 10% from assaulting the all important $20-$21 target level, it needs to stay above the 200 DMA of $17.5 and let the rising 200 DMA carry the metal over the magic $21 hurdle. My target (set in the August 8 2016 article) of $26 by March 2017 remains a distinct possibility. I will update you when this moment happens, in the meanwhile sit tight and enjoy the ride.
I own physical silver and chair Prophecy Development Corp. (TSX: PCY) which is developing Pulacayo mining project with over 20 million oz of indicated silver resource. I own 22.75% of Prophecy.
All currencies are expressed in US dollars.
John Lee, CFA is an accredited investor with over 2 decades of investing experience in metals and mining equities. Mr. Lee joined Prophecy Development Corp (www.prophecydev.com) in 2009 as the Company’s Chairman. Under John Lee’s leadership, Prophecy raised over $100 million through the Toronto Stock Exchange and acquired a portfolio of silver assets in Bolivia, coal assets in Mongolia, and a Titanium project in Canada. John Lee is a Rice University graduate with degrees in economics and engineering.