Heads Up For Silver
According to a reliable source, AMEX Chairman & CEO Neal Wolkoff told Bloomberg this morning that the exchange may begin offering Barclay Capital's silver ETF as soon as next week, though Barclay's petition is still pending…
This should be regarded a rumor until a formal pronouncement.
But, undoubtedly the anticipation of this fund has contributed to silver's spectacular 98 cent spike this week.
The front month COMEX contract popped above US$11 yesterday and is currently trading at about US$11.66 / oz.
Since the November '05 breakout from a 20 month triangular formation on a price chart, silver is up by almost US$4 per ounce, or a little more than 50 percent. As we had noted previously, the implied objective of this particular formation measures to about US$12; it could be extended to US$13 if we abandon some conservatism. So what's next?
My target remains at US$12 plus or minus, probably plus (US$12.66 seems to stand out in my mind).
But I would look for the onset of a correction not long after the ETF is approved for the simple reason that speculators are likely to sell the news that they've been anticipating for over a year. Yet the market may find good support above the US$10 level from two sources - ongoing gains in gold and the demand for silver that Barclays actually generates.
Speculators can be right on occasion, after all.
Vigilance is warranted, still, because there's always the risk that either the regulators balk at the petition in the last inning, or that the issuer (Barclays in this case) balks due to changes in the price of silver since initiating the ETF.
In my view there is more value in gold than silver at least up until the day that the market's focus is on inflation and money, or in the shorter term, up until the day that the stock market rolls over or a geopolitical event occurs.
The silver play that is a byproduct of this ETF news is a diversion that makes gold just that much more alluring.
Precious metals bulls' answer to this week's FOMC statement was particularly encouraging. After booking some profits, they pushed gold to a new 25 year high the very next day in an exciting feat of strength. In other words, the market brushed off the Fed's hawkish overtones faster than usual. The initial breakout point was the move through the last lowest high in the Feb-March downtrend (US$572), which occurred last night; but the new and higher high today was the decisive factor. Platinum is the only metal that has yet to confirm the metals run, but it is within an earshot.
I am cautious about Monday because April 1st makes me nervous (i.e. it's my father's birthday for one - which makes me the son of a joke!). Also, aside from the TSE index, it would be good to see the other gold stock averages confirm the breakout. The six week correction in the averages occurred mainly in the larger cap gold shares, as expected, while the silver and small cap names continued on to new highs. It is noteworthy that the corrections in most of the gold shares occurred within the context of what technical analysts refer to as bullish flags (a normal sequence of lower lows accompanied by dwindling volume), and that as of this week they are all breaking out of their flags. Of the pool of gold producers that the market considers purely gold plays, only Glamis, IAMgold and Meridian have confirmed the breakout in gold with new highs so far - all which consist in our index - but it would be nice to see confirmations from names like Anglo, Bema, Eldorado, Freeport, Gold Fields and Newmont (Goldcorp holds significant silver & copper exposure now).
If we get past Monday I think we will. The market really looks poised to finish this sequence. And in spite of my US$633 gold target, I have a feeling this rally is going to continue at this pace until we start asking, how high can it go?
It should be making central bankers and bond-holders nervous that the FOMC threat fell upon deaf ears!