Wednesday, August 25, 2010

Silver Outlook

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Yesterday ITZ posted a chart of the Silver etf, SLV. Suggesting that a descending triangle pattern was developing. However, with today's breakout on silver that chart, which was borderline Symmetrical Triangle, has now given a different outlook.
The original thought was that since silver is not only a precious metal, but an industrial metal, a slowdown in the economy along with negative headwinds that silver would see some sort of pullback.
So what happened today?
Silver had a very powerful breakout today as investors are seeking assets that are safe and will retain value during a debt crisis and economic uncertainty.
Looking at the gold~silver ratio for the last 20 years it has been in a 50-80 range, currently around the 66 level. link
Silver is seeing demand at these price levels as it's historically cheap relative to gold. If the ratio came down to the levels it was in 2006 it would be close to $27 an ounce. Silver is soaring because investors are realizing this is a hard asset, it's money, and it's historically cheap compared to gold.
Recent price targets for gold by major brokerages have cited $1300. So, even if the gold/silver ratio remains at the 66 level, that would place silver at about $19.70...silver is currently at $18.92.
ITZ favorite stock in the silver & gold miner sector has been Silver Wheaton SLW. It's currently resting at major resistance $21.50. Technicals have an ascending triangle formation set up; more than likely if silver continues its breakout, SLW should follow & break over resistance. Upside PO $26, with the 120-ema providing advantageous entry points.

A look at gold and silver, with Dennis Gartman, The Gartman Letter.

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