Silver Price Update – October 2012

The silver price has been holding strong above $ 32 per ounce over the past  couple of weeks. The metal closed the month of October at the London Fix at $ 32.28, € 20.03, £ 24.28.  Where does the price of silver stand currently? The charts show a couple of interesting things. First, on the weekly chart we see the 50 day moving average about to cross the 200 day moving average. In technical terms it’s an important bullish event, called a golden cross over. Moreover, since the big smash of May 2nd 2011, the silver price has been standing very strong the past couple of weeks  compared to the previous breakouts from October 2011, December 2011 and February 2012. We are not in an overbought area anymore. The chart for the time being confirms a strong base building before a  continuation of the breakout that started mid August of this year.

The COT reports on the other hand are potentially a reason for concern, at least for the silver bulls. As appears on the next chart, the total open interest is still at very high levels. The commercials are holding a very high number of short positions. Commercials are known to follow the trend and turn quickly. In case the silver price would continue its breakout, we could be looking at a price explosion as all those “commercial” shorts would start covering their positions. The absence of a spark for higher silver prices could result in a continuing correction. Chart courtesy: Goldchartsrus  (this chart will only be available temporarily).

From another point of view, we see a bullish picture as the silver miners are leading the metal. The next chart shows how the silver miners have been outperforming silver bullion since July of this year and continue to do so. Historically it has been a sign of strength.

The long term picture remains extremely bullish for silver. The silver price is explosive and the only barrier is the paper market with a high number of short positions. Ted Butler keeps on repeating in his premium newsletter service that JP Morgan’s short positions are far too concentrated, just like a monopoly (but one that is allowed by the regulators).

News out of China hit the wires, confirming the positive outlook for silver. Based on research from Beijing Antaike, silver demand is expected to increase another 10% in 2013, as  investors look for wealth preservation. Mineweb writes: “Consumption may climb to 7,700 metric tonnes after gaining 6-8% in 2012, Shi Heqing, an analyst at Beijing Antaike, told Bloomberg recently. Even for China, this would be a record level. China is the world’s second biggest user of the metal.” Demand for silver is coming from jewellery, coins, and electrical appliances and solar panels. All those types of demand are expected to increase.

 

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