While the average price of silver remains at a multi-year low, there are several indicators pointing toward a much higher price by the end of the year. Currently, the average price of silver so far this year is $20.17, a few cents less than the $20.19 set in 2010.
I realize many gold and silver investors are a bit skeptical and worn-out from the same old BULLISH RHETORIC coming from many of the top precious metals sites. However, it’s extremely difficult to stay positive when most investors are what I call, FICKLE TO THE BONE.
In the 12+ years I have invested in the precious metals, I’ve seen the “Highs” and “Lows” in market sentiment. Through it all, I have never stopped trusting the long-term fundamentals of silver. I truly believe the best is yet to come.
That being said, I have come across three indicators or should I say, positive signals that point to a much higher silver price by the end of the year. Of course this is speculation, but when we add them together… it makes for a pretty solid case.
The FIRST SIGNAL comes from the work of Gene Arensberg at GotGoldReport.com. I have followed Gene’s work for years and I have to say, he is about as even-keel as they come. Gene just puts out the data and leaves emotion aside…. no hype, just strictly business.
According to Gene’s recent article, COMEX Swap Dealers Hedging a Massive Long Play on Silver? he stated:
I’ll tell you what, people, I like the action. I guess short-term anything is possible, but this looks like as bullish a setup as I have seen in decades.
For Gene to say, “this looks like as bullish a setup as I have seen in decades”, he must have good reason. Gene shows in the chart below, just how many short contracts the Swap Dealers have added in just the past few weeks.
The blue line represents the amount of short contracts and the pink line is the price of silver. As we can see, the Swap Dealers short positions shot-up to a record 57,000 contracts. The Swap Dealers are the bullion banks, but Gene believes a lot of the new shorts were added by Goldman Sachs and not by the typical player.
At the same time the Swap Dealers were adding a great deal of shorts, the Managed Money traders (large specs, hedge funds and etc) covered a great deal of shorts and added longs…. shown in the chart below:
Here we can see that the Managed Money traders short positions dropped from a massive 43,000 down to below 10,000 contracts.
Again, according to Gene:
That tells us a few things, not the least of which is that The Funds (MM traders) became convinced in late June that the downtrend which had been in place since February had ended and it had been replaced by a nascent uptrend. Otherwise the trend-following Funds would have had no reason to cover their shorts so fast.
Basically, what Gene is saying is that someone took the Long side of the Swap Dealers massive short positions, and he believes they have to be HUGE to do so… in his words:
If the combined Swap Dealers have used COMEX futures to HEDGE their Swaps Book, then who in the Sam Hill took such a giant long position via swaps? Whoever it is HAS TO BE HUGE and whoever it is – is NOT going to be run out of town by the paper sellers. Not if I am right about who I think it is, and I am not saying yet. …”
Gene isn’t saying who it is, but I believe it’s JP Morgan. Andrew Maguire discusses this as well in his most recent interview on KWN. Maguire believes the big bullion banks such as JP Morgan are winding down their short positions due to the Volker Rule which forces more transparency. Which means, the banks will have to provide legitimate hedging.
So, as the typical large bullion banks reduced their shorts, Goldman Sachs and other institutions in the Swap Dealers category added massive numbers of naked short silver contracts.
Both Andrew Maguire and Gene Arensberg believe the current situation in gold and silver markets are extremely bullish for much higher prices ahead.
The SECOND SIGNAL is by the work of trader Bo Polny, who Jim Sinclair stated was one of the two traders who called the top for gold. Not only did Bo Polny call the top in gold, he also called the top in silver within two hours.
Bo called a move higher for Gold in May & June this year, a low in the summer, and then a spike up with a huge move to $2,000 by the end of 2014. Bo discusses this in a Kitco Interview:
In the interview, Bo says that gold is in a 21 year bull cycle and the next up-leg starts this year. Not only did Bo Polny call the top of gold and silver in 2011, but he also called the bottom for both metals in 2013…. according to records on his website: Gold2020Forecast.
To set the record straight, I don’t place much merit in TA – technical analysis. However, I still admire those who can use them to trade. Bo goes on to say that gold will hit $10,000 by 2020, after hitting $2,000 by the end the year.
The reason why I believe Bo Polny may be on to something is due to all the other factors converging in the precious metal markets discussed above. Not only will the bullion banks be forced to hedge gold and silver in a more legitimate fashion due to the Volker Rule, the Asian markets will start trading precious metals on a more 1 to 1 physical basis this fall… according to Andrew Maguire in the linked KWN interview above.
This will put severe stress on the PAPER COMEX-LBMA MARKET.
It will be interesting to see if gold hits $2,000 this year. If not, no big deal… I have time to wait. However, Bo Polny put his neck out on the line and with it, a great deal of paid subscribers. So maybe he knows something I don’t.
One last thing. Bo also went on the record to say, silver would move higher in percentage terms than gold. He believes silver will see a new high in 2014 as well.
The THIRD & LAST SIGNAL is due to the stock purchases of a well-known Billionaire trader. In the Motley Fool article, Bet Like George Soros and Cash in on a Silver Rally, the author Matt Smith stated:
Billionaire investor George Soros has already made some big bets on precious metals and silver miners in particular. He invested $9.4 million in precious metals streamer Silver Wheaton (TSX: SLW)(NYSE: SLW) and $10.7 million on miner Pan American Silver (TSX: PAA)(Nasdaq: PAAS).
Not only did Soros purchase Silver Wheaton and Pan American Silver he also bought some of the top gold shares such as Barrick, Gold Corp and Yamana Gold. While these are not huge purchases, they represent a step in the right direction. I would imagine as the prices of the mining shares move higher, Soros will be adding more to his portfolio.
If we look at all three INDICATORS-SIGNALS together, we can see something big is getting ready to occur in the precious metals market. As I stated before, I am in gold and silver for the long-run, but it’s nice to speculate on what may take place as these market conditions converge in the short-term.
I believe Gene Arensberg when he says the indicators for gold and silver are the most bullish setup he has seen for decades. Lastly, it will be interesting to see if Bo Polny’s widely bullish call for $2,000 comes true by the end of the year. Heck, I would be impressed if we hit $1,750.
I still adhere to the long-term fundamentals. Gold and silver will be some of the best investments and stores of value in the future due to PEAK OIL, the decline of NET OIL EXPORTS and the FALLING EROI.
Those are already BAKED IN THE CAKE… we just have to let them cook for a while longer.
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