Yes, I’m Still Avoiding Silver’s Seductive Allure

Either I’m a glutton for punishment or an idiot (or both). Whatever the truth, I am still reticent to become a silver bull. Yes, I realize that this bull market is snorting and running with a ferocity unseen in many moons. And yes, I realize that we are making new highs with nary a whisper of overhead supply.

The last time I ventured a negative word about silver was back in November 2010 (Silver At Parabolic Blow Off Top). That was a so-so call because silver did continue to rise a bit into the end of the year but then it corrected back down to the November levels. Definitely not the kind of retracement that I was imagining for this precious metal.

The reasons why I am not a silver bull have not really changed since then. The technical picture looks extremely overbought with sentiment at lofty levels. There is a lot of hot money, especially from the retail crowd chasing silver. Anecdotally, I’m asked about silver by family and friends more than any other individual investment. This is not a scientific measure of course but it usually serves as a great first warning and makes me cautious.

The simple technical formations which showed silver stretched far away from its long term trend are again reasserting themselves. The relative distance from its 200 day moving average is now slightly higher than it was in late 2010:

As well, the gold silver ratio is now close to reaching record levels. The previous level should be well known to all trades as it belongs in the annals of trading history. The (mis)adventure of the Hunt brothers resulted in a spike up to $50/oz. in early 1980. The silver gold ratio spiked up to almost 0.06 (not shown on chart below). Then came “silver Thursday” and a multi-decade bear market. So if you are a gold bug and value everything else accordingly, silver right now is more expensive than it has been at almost any other time.

Finally, I expect the round number $40 to act as both a magnet and as a level of resistance. That is, just as with the round number $30 which first attracted then repelled silver prices, this is an argument for an upcoming setback.

Silver could very well continue to assault higher and higher levels on the charts. When a bull market gets into its final and most frenzied stage, there is little that can stand in its way. So I may continue to be wrong in silver but the contrarian in me balks at jumping on the bandwagon.

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20 Responses to Yes, I’m Still Avoiding Silver’s Seductive Allure

  1. Hans says:

    An entry point today in Ag, is clearly a momentum play at this point….

    All positions should, IMHO, have a 5% stop order….

    Nevertheless, in the long term, silver is going higher and higher….

  2. Big Fella says:

    Good observation, Babak. It certainly feels like we’re due for a meaningful pullback. If that happens, I’ll try to muster the courage to buy a little more gold and silver.

  3. Jim says:

    Glad to see you posting again!

    I am still in my silver stocks myself, but I’m starting to look towards the exit. It’s a tough game, because usually major silver tops are cliffs…

  4. Kevin says:

    Really? So, you’d rather wait until AG gets to $135, on its way to infinity, before jumping in? When the dollar goes to zero (0), the PMs will go to the moon. And I thought $18 was expensive…

  5. BobbyAnn Hermann says:

    Everyone is saying “buy silver” but no one says WHERE ! ! With so many scam artists around I don’t know where to start. I don’t have a lot to invest, but want to protect the little I DO have with silver coins that I can spend, when I wake up some morning and Obama says, “starting today, your papers dollars will be worth 50 cents” ! ! I’m less interested in long term profits, than I am in availability when I need new car tires or groceries ! Any suggestions ?

  6. Aedan S says:

    Price means nothing anymore. You’re still thinking like fiat currency is real…I assure you it’s not. The dollar experiment is ending and will take it’s place along side EVERY other fiat currency in the history of civilization. If your choice was to trade in your car for $10,000 of monopoly money or $100,000 of monopoly money, would you still be perplexed over this? Do you honestly believe the USD isn’t going to plunge? If you don’t want silver then go down to the liquor store and buy cases of your favorite Rum or Scotch. It will be worth much more than your paper soon. If you’re going to stay out, then stay out for good. Don’t be one of the fools that jumps in the at the 11th hour and loses whatever value is left of your paper. When silver is trading in the triple digits it might be more temptation than you can handle, as it will be for many skeptics who then jump in too late and get burned. You’d be better off buying the liquor now instead. This bull run has a long way to go until it’s a bubble. Is it going straight up…no, and if it did I’d eject. When Uncle Ben announces QE 3…pick a number. If you think QE 2 was the end of it, then you’re going to have one more thing you’re in disbelief over when we’re at QE 18 (but of course they will have a new name for it long before we get there).

  7. DoctoRx says:

    Typo. Ratio in 1980 spiked to 0.06, not o.6.

  8. DoctoRx says:

    Also- curious- of these friends and family asking about silver, how many actually are long any? If so, it is a tiny amount or a meaningful amount?

  9. Stevey Wonder says:

    Retracement, maybe, end of the bull market in silver? No way. You save tour green backs and I’ll keep giving them to the silver supplier. The fed can print dollars, a hell of alot faster than miners can produce silver, that + higher silver prices.
    You sound like Larry Edilson now. You will cost your readers alot of money, “IF” they are dumb enoungh to follow your advice. Larry Edilson is still looking for silver to retrace back to the $22.00 dollar level, LOL.

  10. Richard says:

    Thanks for your honesty, but it should be the contrarian in you in the general economy that earge you to be in on silver.

  11. Earl Ellison says:

    Silver is trading on fundamentals not charts. Physical shortage, ending of long term downside manipulations, wider realization that Ted Butler is right, paper currancy fraud, paper silver promises are about to default in unallocated programs because more promises made than silver exists, the corrupt futures markets, treasury, and regulators being exposed with JPM as the manipulators who are running out of track.

  12. Matt says:

    I am glad you are not investing my money. You have missed a lot of money.

  13. Earl Ellison says:

    Select idiot…. I gave you the reasons on the post U wouldn’t show. Fundamentals man, not lines on a chart when a shortage exists and short side manipulation is breaking down.

  14. Ken Dame says:

    I would normally agree with Mr. Babak. However, if published reports of an actual physical (not paper Silver) shortage are true, we may have seen only the opening salvo in Silver. The Hunt brother’s tyst in the Silver market was truly contrived because there was plenty of physical Silver available. A true physical Silver shortage is a horse of another color. Maybe someone should verify with J. P. Morgan, and others that they really do have the physical Silver to back up their shorts. Oh, I forgot. They would never sell naked Silver shorts because they tell us so.

  15. Irene Schweitz says:

    Some say with the elections coming. dollar going down, Asian turmoil, Lybia turmoil and Iran getting involved in Lybia that the silver and gold will be going much higher by June to about 65 Silver and 1700 Gold. What is your take on this?

  16. Sumeet Savla says:

    Thanks Babak for a good report.
    True that silver may continue its upward journey for as long as it wants to. But, sentiment is super-bullish (including all the comments above).
    I am in India and all I hear from family cousins and friends is about buying with targets which are 2x – 4x from here.
    Ofcourse, none of them have ever made any wise investments previously, so their confidence in silver shook me out to the extent that i sold some physical silver of mine! Holding the rest, in case $ does really go to 0 or Rupee goes to 0.

  17. Joe Kessler says:

    Babak, you do not, do NOT, know what you are talking about. Silver is not going up so much here as the dollar is going down. THAT is the story and that should be the understanding nowadays when anyone is talking about silver or gold. And people in the streets are NOT talking that much about their own silver investments yet, I say your anecdotal evidence does not agree with mine and what I’ve seen thus far. To say silver is overpriced here is VERY shortsighted. Just my opinion.

  18. Roger says:

    Silver is historicaly 15 to 1 the Gold price. Your article contained some fancy words, but this isn’t Wall Street. It is regular people using good common sense and inflation is comming. I cannot trust paper money and you shouldn’t either. Take my advice and buy what silver you can still afford. I never needed one single kind of retractment when it came to advice on silver. Are you looking for attention with your article on paper money? Do you spend siver dollars at the gas station too?

  19. dennis says:

    Silver is going higher. when it gets to my projected number and corrects back 20% I will be in again with double my previous stake. Will not sell for profits or stop losses ( only selling in small amounts if and when I may need dollars. Once we flush out the traders. silver will double again at the least.

  20. Dennis says:

    As long as Obama is President, silver and gold will keep going up. I figure I have at least till November of 2012

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