This update may be a little premature, but I took profits on my trading positions yesterday. Some readers have emailed to ask whether now is the time to buy silver and gold. The time to buy in hindsight was definitely when I posted my last two articles. Silver's COT structure looks super bullish – the commercial traders are net short only 29,221 contracts. However, the commercials are very short gold (175,264 contracts) and it is quite overbought with an RSI around 80. Silver is reaching overbought territory as well with RSI over 70. A pullback in gold down in the 680-700 range would not surprise me. We have risen for several weeks without a correction. Somewhat similar to April 2006, I think we’ll soon get a sharp drop in gold and then resume the bull run to new highs through the end of 2007 into 2008. Two year charts shown below for reference.
The fed cut rates 50 basis points and the dollar is hitting new lows but seems to have found support for now. The drop in the dollar provided a boost for gold but I wonder how much has already been priced into the metal. I don't know at what level gold will top in the short run, but I suspect a top between 730 and 750 before a quick correction. Silver has closed over 13.20 (200 dma) so it may test 14 in the short term if gold continues to rally. So far however, the 13.60 range has proven difficult resistance for silver to penetrate. I expect silver will react down in sympathy with gold, but I would be surprised if it dropped more than 1 dollar, based on COT structure. I do believe that there are other vehicles (silver EFT, options, derivatives, etc) that traders and commercial interests can use to short precious metals, other than the COMEX. The COTs are not as reliable an indicator of future price changes as they once were. As in the last sharp drop in August, gold and silver will likely get sold if traders need to raise cash to cover malinvestments. This could cause a sharp and swift correction of silver of more than $1. If we get a more severe correction, see it as a blessing of good fortune and get 100% invested.
I won't have good internet access for the next week so I will probably miss some of the fun market action. If you haven't bought silver on the dips yet this summer, buy on the next correction in gold. That will likely be the low for the rest of the year. If you have not yet bought any silver for your portfolio and if you are planning to hold for long term investing, consider that it doesn't matter if you buy at 13.50 or 14.50. You may want to dollar cost average purchases over the next several weeks. It is more important that you establish a position while silver is still affordable than that you get in at the lowest price. I think silver will break $15 and gold $800 before year end.
Best wishes on your investing and future and God Bless,
Disclaimer: This article represents the opinions and personal views of Timothy Silvers and is not intended to be investment advice. If you choose to use this analysis for your personal trading, Timothy Silvers assumes no liability for the direct or indirect losses you may incur due to using this article to make your investment decisions. You are totally and completely responsible for your own investments. At any given time, Timothy Silvers or his friends and relatives may have positions in silver related investments that may or may not follow the recommendations contained in this article. The information in this article may not be completely correct and accurate. Even though Timothy Silvers has done his best to review the content and accuracy of this article, he is in no way liable or responsible for any mistakes or omissions.
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