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Weekly Silver: $26 Is The Line In The Sand

By CommoditiesApr 14, 2013 05:19AM GMT 4 Comments
 
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The $26 level has acted as silver’s support for over two years now. And after a 10% slide over the past three weeks, including Friday’s 6% drop, we’re once again challenging this all-important line in the sand.

Will $26 hold this time? Maybe not… yet I remain a long-term silver bull and see lower prices as a buying opportunity.

It’s been a painstaking ride for silver buyers, my clients included. Fortunately, most outright long futures positions are hedged off with some sort of options exposure. It usually makes sense to sell calls or buy puts against at least a portion of large long positions. Silver is no exception.

Let’s take a look at sentiment, which has turned extremely negative.

ESI
ESI

“Calling all contrarians” …”Calling any contrarians”

Silver sentiment is turning more negative by the day –
  • Gold is now trading under a psychologically important level ($1,500), likely triggering a flood of sell stop orders and shaking out weak longs.
  • Oh, and Goldman Sachs is now predicting a bear market in metals, including gold and silver.
  • Meanwhile, Citibank came out today claiming the end of the commodity bull market has come.
  • And adding insult to injury, the equity bull market rages on, with overall bullish complacency aiding the recent rout in metals.
  • All we need now is a Newsweek or Time magazine cover proclaiming the death of commodities and we’ll be able to call the bottom.
If you haven’t guessed it – I fully subscribe to the theory of being a contrarian at sentiment extremes. As weak hands let go of their longs I will take silver off their hands and be a buyer with my clients.

Whether we’ve fully put in a bottom is not the point. We could easily fall through $26 before hitting rock. But I’m more concerned where prices will be in the coming months, not days. I expect prices closer to $32-34/ounce by Q3 and aim to use this two-year long setback as a buying opportunity within what I see as a longer-term bull market.

I recommend wading into bullish trade slowly and consider incorporating options hedges.

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Comments
Jim Roof
Jim Roof Apr 15, 2013 02:47AM GMT
Gold is likely to reach the mid 1200 range as the 18 month long consolidation between 1500 and ~1750 has clearly broken down, revealing itself now as a reversal pattern. Silver would be compelling at 20.

Abhishek m r
Abhishek m r Apr 14, 2013 03:34PM GMT
Silver may not likely to hold the 26 mark - if there were chances of holding then we wouldn't had made a low of 25.86 rather 26.10 or 25.98 we had to take supp >> so the stage is clear for 25.50 - 25.10 - 24.60 ahead & #call bottom @ 22.15 lately -

Susheel Vishwakarma
Susheel Vishwakarma Apr 14, 2013 03:02PM GMT
30% fall in all commodity is normal from the peak.

Mike Di Vito
Mike Di Vito Apr 14, 2013 12:52PM GMT
"Sell silver and buy toilet paper" The Goldman Sachs Group, Inc.
 
 
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