In our latest Premium Update, we wrote that the most important market to monitor at this point is silver and that additional signal will most likely come from the silver:gold ratio, which is about to reach its own target level.
We have estimated the likely target for silver in the area approximately between $47.50 and slightly over $50 (red ellipse on the very long-term silver chart). The highest target that we described in detail was the $49.73 level base on the Fibonacci number (Phi - 1.618) extrapolation of two major turning points: 2001 bottom and 2008 intraday high.
Today, in early trading silver moved to $49.79, which is almost the same as the above-mentioned $49.73 target. Gold moved up a bit as well, but the size of the rally in silver was much bigger. In fact, it caused the silver:gold ratio to rally over 0.033, which was at the upper border of the rising trend channel visible on the silver:gold ratio chart - included in the latest Premium Update. In other words, the target was reached not only for silver, but also for the silver:gold ratio.
Additional thing worth mentioning here is the fact that silver is finally making headlines. The http://finance.yahoo.com page has Bloomberg's "Silver surges to all-time high" news on the main page, and SLV ETF is Yahoo's "top stocks bullish ranking". Sentiment is extremely positive, which is confirmed also by other factors that we will describe in detail in one of the coming updates (most likely the next one). This means that a local top is likely to be in or is very close to being in, as everyone that could invest in silver at this moment are already in the market. Without new buying power price cannot rise, so extremely positive sentiment is actually a bearish factor.
Consequently, we believe that the speculative long positions in gold, silver and mining stocks should be closed. Please note that betting on higher precious metals' prices was suggested on April 8th, when gold was over $20 lower and silver was $6 lower. If silver tops here, then the rest of the precious metals sector is likely to move lower as well. Remember - with speculation there's always the next train.
At the same time we are not advocating opening short positions nor selling your long-term holdings. The latter should be done only if your risk tolerance is very high. We continue to recommend staying alert for new developments and new messages from us.
If this top is going to be similar to the previous major tops that we've seen so far - and we view that as likely, then we will see significant volatility in the following days/weeks and probably a double top of some kind; please take a look at 2006 and 2008 tops in silver for more details. This means that there will probably be another chance to exit the market that would be accompanied by additional confirmations. Consequently, the probability of a decline would be higher and selling (hedging) ones long-term holdings and opening speculative short positions may then be justified from the risk/reward perspective.
We will let you know if/when the above is no longer up-to-date. Until that time, we believe that one should remain invested in the precious metals sector with ones long-term capital and out of the market with ones speculative capital. Please refer to the Key Principles section on our website for details.
Thank you.
Sincerely,
Przemyslaw Radomski
