{"id":31565,"date":"2012-08-13T06:14:51","date_gmt":"2012-08-13T06:14:51","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/08\/the-dumb-money-hates-silver-its-time-to-go-long\/"},"modified":"2012-08-13T06:14:51","modified_gmt":"2012-08-13T06:14:51","slug":"the-dumb-money-hates-silver-its-time-to-go-long","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/08\/13\/the-dumb-money-hates-silver-its-time-to-go-long\/","title":{"rendered":"The Dumb Money Hates Silver, It\u2019s Time to Go Long"},"content":{"rendered":"

By MoneyMorning.com.au<\/a><\/strong><\/p>\n

Speculators hate silver<\/strong>… <\/p>\n

For the past year, the positive silver headlines have been few and far between.<\/p>\n

Ever since the poor man’s gold peaked near $50 in April of last year, it’s become a despised metal.<\/p>\n

Admittedly, it’s been languishing near $27 since early May not far from where it was for the first time – in this bull market – back in late 2010.<\/p>\n

But as I’ll show you, right now a number of technical, seasonal, and sentiment indicators are pointing upwards for this volatile metal. <\/p>\n

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This could well be the critical turning point silver investors have been waiting for. One of these indicators is the resilient price of gold. <\/p>\n

Let me explain.<\/p>\n

The Silver\/Gold Ratio<\/h3>\n

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Silver has always pretty much been gold’s lapdog and on a relatively short leash at that. <\/p>\n

As a rule, silver prices usually follow the direction of gold. But as long time silver investors recognize, the moves are amplified both on the downside and the upside. Silver prices<\/a> are simply more volatile than gold prices<\/a>.<\/p>\n

As for gold, since it peaked about a year ago, it seems to be drifting aimlessly in zombie land. For the better part of the year it’s been consolidating about 16% below its previous peak of $1,900. <\/p>\n

Today, at $1,600, gold is back to levels its first saw a whole year ago. What investors need to pay attention to is the gold to silver<\/a> ratio. <\/p>\n

Before the financial crisis, the gold\/silver ratio was around 50 and trending downward. That meant at the time an ounce of gold would buy you 50 ounces of silver. <\/p>\n

\"Gold\/Silver<\/div>\n

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Source: StockCharts<\/div>\n

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Then in late April last year silver exploded higher. As the silver price rose an ounce of gold bought a smaller equivalent amount of silver, pushing the ratio down below 30. <\/p>\n

That was short-lived, as silver’s dramatic rise was unsustainable. I had said so at the time. <\/p>\n

Today, the ratio recently returned to a high level near 60 which is also unsustainable in its own right on the other side of the trade. It’s why silver’s looking rather undervalued relative to gold right now.<\/p>\n

My long term target for gold still remains US$5,000. As this bull progresses, I think we’ll see the gold\/silver ratio move down closer to 20 which would imply that silver eventually reaches US$250.<\/p>\n

Gold also normally starts its best seasonal period now, as the [northern hemisphere] summer doldrums come to a close. Since its secular bull launched back in 2001, gold has averaged 19% gains between the end of July and the end of May. <\/p>\n

If silver follows and tacks on some leverage as well, we could enjoy substantially higher silver prices by next spring.<\/p>\n

But thanks to wildly bullish fundamentals, silver could retest its 2011 peak, or better it, by then. <\/p>\n

As you know, it’s no secret that Europe is mired in ongoing bank and sovereign bailouts, the U.S. presidential election will bring further uncertainty, and China could be set for a marked slowdown unless it makes its move on stimulus.<\/p>\n

I expect lots more money printing as a result, whose inflationary effect is always kind to silver and gold<\/a>.<\/p>\n

Technical Signs Point to a Silver Bottom<\/h3>\n

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On a pure technical price basis, silver is looking quite bullish as well.<\/p>\n

\"Two-Year<\/div>\n

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Source: StockCharts<\/div>\n

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Silver appears to have bottomed recently in the $26-$27 range. It’s not the first time this price level has been relevant either.<\/p>\n

Back in late 2010, $26-$27 acted as resistance where silver’s price had stalled. Late in 2011, and again in the last couple of months, silver has retested those prices, but this time it’s provided support, forming a “silver staircase”.<\/p>\n

It now looks like we could be near a new low. Since late June, silver’s been establishing a series of higher lows<\/a>, providing additional support for a bottom.<\/p>\n

Three More Reasons Silver is Headed Higher<\/h3>\n

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But those aren’t the only reasons to be bullish on silver these days-or gold for that matter. Here are three other reasons why the outlook for silver is higher from here: <\/p>\n

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