Monday, April 23, 2007

Silver/Oil Ratio and $20 Silver

Silver's next move higher may hinge on Oil's next move higher.

Last Thursday April 19, Oil was down almost $2, Silver got rocked, and Gold was little changed. Much blame was placed on the Chinese GDP numbers and World Stock market reaction to those numbers. Today, Monday April 23, Oil was up almost $2, and Silver lead all Precious Metals on the day. Could Silver and Oil be having an affair behind Gold's back?

For an very insightful discussion of Silver and Oil's historical relationship please read Adam Hamilton's excellent Silver/Oil Ratio Extremes: .

Oil has been consolidating it's recent gains from mid-January's low around it's 50 Week Moving Average AND the 38% Fibonacci Retracement of it's bull run that began in mid-April 2004. The Fibonacci lines of that bull run can be seen on the chart above.

Please click on the chart to enlarge.

The Fibonacci Retracements on that chart are spectacular in how accurately Oil has retraced them. The current five week consolidation in Oil (green circle) not only revolves around the 50 Week moving Average and the 38% Retracement line, but the neckline of a textbook Reverse Head and Shoulders pattern as well. The bullish potential for Oil at this juncture in time is spectacular. And a move above 67 in Oil could potentially be hugely explosive for Gold and Silver. This may just be the catalyst we need to send dem Rat Bastid's running down Wall Street naked with their shorts on fire.

According to Adam Hamilton, on "average", the Silver/Oil ration is 0.26 . If oil were to return to $80 with a coincidental move in the Silver/Oil ratio to 0.26 (currently at 0.21), Silver would be trading at $20.80 an ounce. Imagine that... And judging by the above charts internal indicators RSI and MACD, Oil is far from an interim peak at this point in time. A break of the RSI downtrend in red could signal an imminent breakout in oil. And just what the doctor ordered to push Gold thru $700 and Silver thru $14.50.


Silver Resistance: 14.o4 / 14.12 / 14.30
Silver Support: 13.95 /13.88 / 13.75
___________________________________All prices SPOT

Gold Resistance: 691 / 693 / 699
Gold Support: 688 / 686 / 681

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