Wednesday, December 8, 2010

Silver (SLV) and Gold (GLD) Coming into Support

I mentioned yesterday a lot of commodities had some pretty ugly intrady reversals.  That action continues today.  We saw silver do a heck of a reversal in the 2nd week of November, and that led to about a week of selling.  The silver ETF (SLV) fell to about the 20 day moving average which was an excellent place to accumulate the ETF for the next ride.  This is the "David Tepper" metal ("you can't lose!") - if the economy does better, silver usage will increase since it is an industrial metal, but in the meantime with global central banks and the U.S. government shooting currency out of every holster you get the currency debasement action as well, so the precious metal aspect kicks in.

That said, things get overbought and overcrowded at times - even if the underlying theory is correct.

With silver (ETF) it is still not yet at its 20 day moving average, but a much more attractive price now than chasing it at $30 yesterday.

Gold does not have quite as clean of a chart as sometimes it falls to its 20 day, and sometimes to its 50 day.

While 12-15 months ago people were using the precious metals as their traditional 'inflation' hedge, I was saying these are going to be a fiat money debasement hedge.  Which now appears to be the consensus based on the blogosphere and CNBC-sphere.  But certainly they should also do well in an inflationary environment as countries like the U.S. try to devalue their debt obligations and crush their saving class.

The biggest bullet to the precious metal story in the years ahead is central bankers and government's begin to act responsibly..  I will let you place your own odds on that sort of development.

All that said, if silver breaks the 20 day moving average with conviction and/or gold the 50 day - the chartists and momo guys who buy every dip will abandon the trade in the near term and you could have a real selloff.  (which I think would be a fantastic LONG term buying opportunity)  So one needs to be aware of that scenario even as the "can't lose" trades roll on.

No positions


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