Silver has reached a most critical juncture, albeit its volatility,as it has moved by 2% or more either up or down in a third of all trading days since the beginning of the financial crisis. During periods when the Fed was engaged in aggressive balance sheet expanding stimulus, Silver would rise given its status as a store of value against money printing and currency debasement. It has also served as a reliable safe haven during times of crisis. But has not performed during Operation Twist program.
Without explicit currency debasement, Silver loses its store of value appeal. But with only balance sheet neutral monetary stimulus, the system does not become sufficiently unstable to persuade investors to seek safety from crisis. The Fed's announcement that they will only be extending Operation Twist through the end of the year is not bullish for the metal.
In it's statement the Fed notes; " The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability." link
Basically if conditions worsen in Europe, they stand ready to intervene with balance sheet expanding QE3. It even remains possible that the ECB will launch a balance sheet expanding policy stimulus of its own. Silver would likely respond extremely well given either of these scenarios.
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ITZ has suggested Silver Wheaton (SLW) 1/2 position on 4/30 @ $30; 1/4 positions on 5/8 & 5/9 @ $26.75 link
Dennis Gartman is widely followed for his keen understanding of commodities, especially gold. And he tells us the way he’s trading the precious metal has just changed.
(Silver Wheaton SLW has a 4.6% weighting in the GDX)