Tuesday, April 19, 2011

Silver: Everybody Looking For A Piece Of The Action

I received a message on my Facebook page yesterday from a friend who has long known of my interest in the Precious Metals.  I had not heard from him personally in a great while.  He wanted a recommendation on purchasing "some Silver".  A co-worker that knows of my interest in Silver stopped and asked me if now was a good time to buy Silver.  I then became curious about the average Joe's interest in Silver now that it is making headlines daily.

A quick trip over to Google Insights For Search page and we learned that "Silver Bullion" searches on the Web appear to be rising as fast as the price of the metal itself.  As a matter of fact, looking back, searches for Silver appear to shadow the rise and fall of the price of Silver.  It is noteworthy that "Silver Bullion" searches on a monthly basis as seen below are at an all-time high as is the price of the bullion itself.

If anything, this clearly shows that a rising Precious Metal price certainly attracts more interest the higher the price climbs.  The peaks in searches coincides with the peaks in Silver prices clearly in the Spring of 2004, 2006, and 2008.  What is very interesting on this chart is the second higher peak in the Fall of 2008 [and the previous all time high on this chart prior to today].  This peak coincided with the 2008 low in the Precious Metals after their severe beat down following the Bear Stearns blow-up and the onset of the Global Financial Crisis.  Silver was at $8.45 an ounce then.  Today with Silver now at $44 an ounce, "Silver Bullion" searches are at a new high.

What this says about the growing interest in Silver presently, and the steadily rising prices for the past month is open to debate.  One I have been having with myself as I refuse to chase Silver higher up here.  Is this the beginning of a Silver mania?  Silver prices have advanced 23% in the past 30 days, and 44% since the markets opened Jan 3, 2011.  Silver has been on some ride....and rides like this don't last forever.

As you well know, I became cautious on Silver as price reached $37 an ounce just days prior to the earthquake in Japan.  In this chart, I targeted $34.80 as a buy point. All indications at the time were that should silver break higher from it's pause at $37, it had the potential to run towards $41.  And damn if hasn't done that and more!  But now is not the time to throw caution to the wind, and chase Silver higher.

Now is the time to seek an opportunity to buy, or add to positions at a discount to these herd following prices up here.  The question then becomes...will we get an opportunity to buy at a discount, and at what price?

Silver Is Getting Too Popular… Right?
By Jeff Clark
So, as an investor looking to maximize my profit, I have a natural question: is the silver trade getting too crowded, meaning we're near the top? Have the masses finally joined the party such that we should consider exiting? After all, it's not a profit until you take it, and you definitely want to sell near the top.

Silver hardly resembles the picture of an investment that is too crowded.

I'm not saying one should rush to buy silver right now. After all, it has doubled in seven months. Unless this is the beginning of the mania, prudence would certainly be called for at this juncture. The price will always ebb and flow in a bull market, and an ebb is overdue.

How to Ride the Silver Bubble
By Jeff Macke
If you're reading this, then you're going to buy silver if you don't own it already.

I'm well aware of the fundamental arguments for buying silver and gold. In short, the dollar is worthless, silver "should" have been higher all along, silver and gold are going to be the only asset that's going to hold value in the coming global meltdown, etc. All of these theories are well and good, maybe even right, but that's not why people are buying silver today. The fundamental silver bulls have been long for ages. The people buying today are buying silver because it's going higher and they want to get a piece of the action. Put it this way -- I'm long gold from much lower but I'm not at all tempted to get longer here. But, wow, do I wish I had some silver. That covetous thinking is entirely human. Don't ignore it; understand it.

Because I know you're going to be reckless, I'm here to tell you some rules for chasing bubbles. Don't argue with me as to whether or not silver is a bubble. I don't really care. The fact is that charts like silver's 5-year don't occur in nature. They are functions of a mob. Being part of a mob can be fun and lucrative as long as you don't get arrested or killed. Here's how to avoid such a fate:

* Don't pretend you're a fundamental player. Clinging to a position because you're a "long-term holder" isn't appropriate after an 8-fold increase. Getting long now is chasing, plain and simple. Don't convince yourself otherwise.

* Have an exit plan. I give you some points at which to sell, should silver pull back sharply. If you don't like mine, then use your own. Just have a plan.

* Don't fall in love. This is true of any investment, but particularly true when an asset's price goes parabolic, as is the case for silver. The responses to last week's piece suggest a passion people shouldn't have about their portfolios. That's a huge, raging, enormous red flag.

* Scale in. Don't put your money to work all at once. Put a little bit into play to ease your very human desire to chase. Get a taste to ease the pain and keep some reserves ready to deploy if and when we get a minor pullback. You don't want to be the person who plants a flag at the spike of a bubble.

I'm not here to debate the fundamentals of silver. This isn't an economic argument but a guide for being reckless without getting killed. I'm not advising you to do anything; I'm telling you how to get out alive when you chase silver because, in my experience, we're all likely to succumb to the allure of the glistening, sexy metal.

He's right, you know.  The chase is on in Silver as we watch it here at $44+.  But how high will it be chased, and when those chasing it stop, who'll be left to buy?

Silver moving higher on mediocre volume
By Dan Norcini
In watching silver move up towards $44 in today's session, I am struck by the huge amount of air pockets above this market. Based on the manner in which is it moving up, there are simply not enough offers. I get the sense that would-be shorts in silver are terrified to step in front of this market. The dearth of sellers is allowing small bids to take the price up in big steps.

Coming on the heels of what was a huge volume day yesterday, I am a bit concerned about this. Right now it seems to be more a case of fewer sellers than it is a case of more buyers. I want to see the metal clear $44 and hold that level to feel a bit more comfortable about this and I want to see the volume pick up some. This market has come a long way and will need to see plenty of buyers even at these levels to keep it moving steadily upward.

In an essay released March 11, 2011, Martin Armstrong noted that the week of April 25 - May 2 would be a turning point for the markets.  Turning points can be either up, or down, depending on the market at the time it reaches a "turning point" in time.  Coincidentally, next week brings a key FOMC meeting with regards to the market driving QE2 presently in place, and set to expire June 30, 2011.  Make a note...opportunity may soon come knocking.  At what price opportunity, remains to be determined.

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