Silver and gold Start to Move on global unrest, economic turbulence, and increase in inflation

This jump in prices over the past week has been expected by MarketScheming.  Today on market open, silver and gold started to move sharply higher.  This buy pressure can be attributed to a variety of reasons, from Economic woes in US and the EuroZone and Geo-political risk that has increase dramatically over the weekend.

Libya rebels make "final push" into Tripoli

Egypt and Israel strained over killing of police officers in Egypt

Israel continues offensive in Gaza

Increase calls for Syria's president to step down

Silver Break Out Imminent | Silver and Gold rise on geo-political fear and inflation

Silver is hovering between $40.50 and $41.00 looking to be ready to pop.  Based on many factors such as gold/silver ratio, technical analysis, fundamentals and geo-political climate, it has been MarketScheming belief silver will continue to ride to new highs. 

Below is a Live chart of silver from Kitco.

Silver SLV Technical Analysis | Silver looking to move higher | Fundamentals and Technicals Point higher for Silver

  

Silver looks to have started an impulse wave to the upside.  Wave 2 was a 61.8% retracement of wave 1, and current the price is staying above the 50 day MA.  Breaks above 40 in the SLV should be confirmation that higher prices are to come.  Target 1 sits around 44.30 and target 2 is at 50 on the SLV.  Look for price to stay contained within the channel lines for most of the ride up.

The MACD is looking like it will reject the 0 level and move higher.  Overall silver is looking solid for more analysis on silver check out this video.

Gold, Silver, and S&P500 Correlation Breakdown | Silver chooses to follow Gold rather than the S&P 500

The last few days have been all over the map, but it can be clearly seen that today resulted in Silver deciding to trade like a precious metal on the back drop of possibly the worst economy backdrop in the history modern economics. Watch for silver out performing gold over the next few months, including dropping less in a correction than gold.

Silver looks prime for break | Gold : Silver Ratio is looking pretty extended

Silver has just managed to start an uptrend with 2 days of higher highs.  I am expecting a rally to $42-$45.

Currently the Gold : Silver ratio is $1799.40/$39.03 = 46.1

 

Silver seems found its precious metal feel in starting in August 2010 with a rally from $17 to $30 by year end.  Silver stalled out in January but then quickly increased to around $48 at the end of April .  The sharp pull back that follow was perceived as a the "end to a bubble" by the mainstream media only to the $30-$32 range has held as support very well and is likely to be the low or a while.

Since the historic Gold : Silver ratio being around 16, this convergence will be of epic proportions.

Silver retraced 61.8% from the previous move which we can label Wave 1, this pull back has likely ended based on the bullish setup.  Candlestick pattern can be arguably considered a Morning Star.

The slow Stochatics is oversold and the MACD looks like it is rejecting the 0 level which will result the MACD line crossing the signal line over the next few days.

Gold has just made a new all time high

This morning gold came close to 1580 breaking it ask time high of 1577. Look for the price to accelerate when the US market opens.  Silver is testing 37 as I am posting this as well.

Yukon's Economy gets a boost from Alexco's first quarter production.

Section that highlights Alexco Resources Corp.:
"The Yukon Economic Outlook forecasts mineral exploration spending to exceed $250 million, setting a record high.
Mineral production is expected to exceed $560 million this year — up from a forecasted value of $284 million in 2010 — due to strong gold, silver and copper prices and the recent launch of Alexco Resources Corp.'s Bellekeno silver-lead-zinc mine and Yukon Zinc Corp.'s Wolverine zinc mine.
The Bellekeno mine officially started commercial mining operations in January, while Yukon Zinc is expected to reach commercial production at the Wolverine mine in the third quarter of this year, according to the government's outlook.
"Current estimates have the total value of production from Wolverine and Bellekeno at almost $300 million for 2011," the outlook report states in part."

UPDATE: 5 day Moving avg holds - End of Day SLV and S&P 500 charts

Just to update my last post with the end of day charts.  As expected the 5 day MA held.  The S&P500 and SLV made their way higher to close.
Using the SPY as a proxy for the S&P500 to show volume:

The yellow line is the 390 period moving average which equals a 5 day moving average on the 5 min chart.  After the test just after 11 am, the market rallied quickly higher, pulled back, then closed up for the day.  This is a positive sign that the short - mid term trend change that happened on the 17th might be continuing for the next couple of weeks.

Above chart is the daily for the SPY.  Since the January 10th, 2011, the market has been trading sideways.  Today the SPY has broken above the top of the channel.  What is more encouraging is that the momentum indicators show a shift as well.  Slow Stochastics is pointing up indicating a increase in upside momentum as well as the MACD that has held the 0 level and is looking as if a "buy" signal cross over will occur early next week. 
I am not long term bullish on the Stock market, as the economic situation is unsustainable, however, QE3 will enviably give the market a boost.  However... If Elliott wave count that is generally accepted is true, then the impulse wave off of the July 2010 lows is in its final leg to the upside.  If there was a 32.8% retracment even from the current level, a drop to 121 would occur on the SPY.  Another way to look at this is that this entire year has been a correction through time and thus upside movement would be a confirmed trend change leading to another impulse.  Regardless, stay vigilant and ensure risk management via stops.

Silver has followed a similar pattern with a test of the 5 Day MA happening just after 11.  The SLV closed basically flat on the day.  This is to the surprise of the sellers between 10-11 am.  The bottom fell out of silver but the 5 Day MA held quite nicely.

As you can see, Silver had a substantial retracement from the highs of around $50.  This was not unexpected, as the price moved from around $17 to $50 in about 9 months.  The Slow stoch looks like it could pop up however it would be considered "locked in" at this stage until it can get above the 20 level.  The MACD is less encouraging that the S&P 500 as the MACD line is under the 0 level but is currently looking as it a bullish cross over will occur next week or the week after.

Confirmation that GPR.TO is undervalued relative to other mining companies

GPR.TO ( Great Panther Silver ) has been followed on this blog for a while, and recently there has been an interesting development within this stock.

This massive triangle that began at the start of April. I would like to make a case of a break out of the triangle which will lead to a substantial gain in GPR.TO.  This gain may overshoot true valuation and have a pull back but I am expecting at least a 10% move.

Complicating this situation was the announcement of a $24 million Bought Deal which closed on April 12th, but was announced March 24th.  When this was announced, the stock quickly advanced to around 4.80 an all time high for this stock.  However, this began this triangle to find the true value of this stock.  The key here is, on April 12th, the underwriters instantly exercised the over-allotment option.  The stock price this bought deal was executed at was $4.20.

"We are very pleased with the strong investor support for the Company as evidenced by the over-subscription," said Robert Archer, President & CEO.

My last part of this case that this stock should at least be over the $4.20 mark comes from some analysis of three mining companies: GPR.TO (Great Panther Silver), FVI.TO (Fortuna Silver), AXR.TO (Alexco Resources).

Using a Canadian Silver ETF (HUZ.TO) to describe price movements in silver this graph shows that a convergence between the HUZ.TO and GPR.TO is likely.  Compared to all other mining companies GPR.TO has not kept up with the silver moves.  The right hand axis is the scale for Silver and the left hand axis is the scale for the mining companies.

Also some historical correlations from January 1st, 2010 to April 19th, 20th

Correlation GPR<->HUZ    0.610178314
Correlation GPR<->TSX    0.404853301
Correlation FVI<->HUZ    0.51851121
Correlation FVI<->TSX    0.416605769
Correlation AXR<->HUZ    0.559390905
Correlation AXR<->TSX    0.442104414
Correlation HUZ<->TSX    0.512571887

GPR.TO has the highest correlation with HUZ.TO, however in the past 10-20 days this correlation has broken down.  I expect that when investors have a signal that this stock is about to move, the move will be fast and furious, barring any collapse in silver.

Silver New Post-Hunt Brothers High ($40), Gold All time High ($1466), FVI.TO had 15.47% gain (all time high!)

With the dollar continuing to get crushed with events such as these looming:

• The threat of a government shutdown
• Portugal has officially asked for help from the ECB
• Japan aftershock and degrading nuclear situation
• Riots/revolutions in middle east/Africa occuring in Cote D'Ivoire, Syria, Yemen, Tunisia, Egypt, and more
• Libya where there is a full blow new war causing oil prices to sky

 It is easy to understand why Gold and Silver are seeing relentless buy pressure.  Remember the FED has pumped massive amounts of money into the system via QE1, QElite, QE2.  They are doing this by buying back Treasury bonds some issued literally 1 week earlier by the Treasury Department.  For foreign holders of US debt, their patience is running on empty leading many people to believe that the US dollar could face massive sell pressure over the next year.  This would lead to substantial inflation in the US.  If you were a treasury holder would you want to be the last one out of the door?

  Well silver has officially hit $40 twice.  I fully expect that when the stops are taken out that are around the $40 level watch out.  There could be a correction, however, $50 will be hit by Summer there is little doubt.  This is truly remarkable, as last summer the price was fighting a battle around the $18 mark.  Check out the latest price @ Kitco

All time high for gold.... Wow.  1500 will have to be touched by summer.  Check out the latest price @ Kitco   

Now to a specific company I have been trading and commented about over the past few months.

Fortuna Silver Mining FVI on the TSX:
From a technical standpoint this looks very attractive for various reasons:

• Massive Move breaking to new all time high ($6.30)
• Volume was 2.9 million where the 50 day average is 782K
• MACD had a bullish cross over
• Slow Stochastics is a 58 therefore plenty of room to run

Caveat: The move today was massive, and took price action above the Bollinger band.  Therefore, a pull back is very likely and will be a buying opportunity.

GOLD and SILVER surge

 Above is Kitco live 24 hour Gold chart

Above is Kitco live 24 hour Silver chart

Gold has broke above 1450 and touched a new all time high of 1457 and change.  Silver got above 39.00, the highest it has been in 31 years.

The S&P500 today started strong but ended flat on the day.

The divergence between metals and stock markets I believe will happen within the year.  I expect markets to roll over while metals continue showing strength. They have been so closely correlated as QE1 and QE2 worked their magic.  However, the increase in metals was I believe from the debasement of the USD.  As the stocks market realizes QE3 might not come right away, stocks will likely roll over.  However, Inflation expectations are increases and I expect more demand for the inflation hedge that gold and silver provide.  Ben also mentioned in his speech that he will tolerate "transitory" inflation.  This is a path to 5-10% inflation unchecked.  If expectations embed a Volcker style hike may be necessary to halt inflation.  We will see what the summer holds for us. I think 100-130 oil will be with us for a while.

S&P 500 update and Silver potential breakout

Above is the S&P 500 chart.  Back to the same old low volume float.  I still feel strongly that we will see a test of the 200 MA before the end of the year.  However, there is potential that the market will continue up to make new highs which will be a definitive wave 5.  If this is the case, expect a deep correction.

At some point the Fed will have to raise interest rates or at least announce that QE2 has ended with no QE3.  What is holding this market up has been the daily POMO so removing this will inevitability lead to a deep correction as the true price will need to be discovered.


Crazy stories from Zerohedge show that the US is weeks away from a full out default on US debt.  It is laughable for this to be allowed which is why I totally expect them to raise the ceiling asap.  A default of the worlds reserve currency would put global prices of commodities and companies in a state of crisis / panic.

  Break of the 38.00 level should quickly lead to an increase to the 40.00 mark.  My expectation is 50 will be hit by the end of summer or early fall. 

UPDATE: SILVER holding above 36, S&P500 near critical resistance, G-7 intervention in Yen, Libya No-Fly enforcement

Silver has proven its resilience in turbulent times.  Tunisia revolution,  Egypt revolution, Libya Civil War, Japan Tsunami and damaged Nuclear power plants, Yemen riots, as well as Bahrain riots with Saudi intervention; just to name a few events.

Historical moment has been reached.  The USD is no longer a safe haven currency (represented with UUP a 2x bull ETF).  Up until now the any time there was any similar event (above) everyone would liquidated assets into USD and wait until the dust clears.  Not anymore, other assets mainly commodities have continued their climb higher.

The USD weakness could result in much lower price by Fall.

 
 Well the breaks came this past few weeks.  So based on technical I have determined I will take a short position in the index within the next few days.  Targets are listed below with the respective indicator.

Volume: Source - SPY:  The bears are out hard.  Watch for volume to provide proof that the price move has strength in it.  If there is another low volume float, start thinking of joining the bear side for the next leg down.

MACD: Momentum is now technically bearish, as the MACD line is below the 0 level.  However, it has started to move back towards the 0 level.  If the MACD line can't get above the 0 level it will be a strong sell signal. However, a strong bullish move will allow the bulls to reclaim this indicator.

Slow Stochastic: This is going to be my key indicator for sell signal.  Ideally I will short when there is an overbought condition.  This will provide additional bearish momentum to the index.

ADX:  As you can see the trend is technically bearish, and the yellow line indicates that the market is trending (>25).

So I will look for a entry into call options for SDS 2x bear S&P500 ETF over the next few days as protection for my silver long positions.

Just looking at the fib levels it is clear that we are not anywhere close to a standard correction.  My expectation is that we will see a 50% retracement.  However, the FED could signal more bond purchases which could result in a faster turnaround.   


G-7 Intervened in the currency markets recently selling Yen to help control the currency's strong bid as the recent disasters have caused a repatriation of wealth. 

The coalition has began military exercises against Libya's military installments to prepare for a No-Fly zone which is sanctioned by the UN. 

A great summery of these events can be seen here: businessweek.com

Japan is threatening further G-7 Yen interventions: Wall Street Journal

PDAC International Convention - TSX: AVL, FVI, SBB, AXR. Also TA update on AVL - Avalon Rare Earth Metals

 I had a chance to see the PDAC International Convention in Toronto, Canada at the Metro Convention Center, March 6th-9th, 2011.

The bridge connecting the North and South Building

Entrance to the conference

Everyone was at this conference, just a sample of the booth list

Here are some of the booths of companies I have talked about a few I current have positions in.

 
Alavon stock look poised for a solid gains if the resistance breaks on the upcoming test.

Call it what you want cup & handle, wave 3 of 5, etc, but Avalvon looks poised to take off soon.  Once the recent high of 8.41 is broke this stock could run quickly.

Business News Network was at the conference as well.

BNN

In the international hotel there was this as I exited. 

SDS, AVL.TO, FVI.TO Charts

SDS - 2x bear S&P 500: Bullish divergence - Position Call Options March 22.00

AVL.TO - Avalon Rare Earth Metals - Setting up for a run to test recent highs - Position: Stocks

 

FVI.TO - Fortuna Silver - Break out move, Slow Stoch embedding - Position: Stocks