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.