A Silver Rally

I would like you to take a quick look at this. What we are currently witnessing in the silver market is exactly what major rallies are made of. A) great fundamentals, B) neutral or even bearish sentiment, C) strong buying.

Now, I am not in any way inferring that silver prices are heading to new all-time highs in the next few days, (as a matter of fact if they did I would probably become more short-term bearish than bullish). That is only something that the smartest and least intelligent investors alike can only see in hindsight. What I am saying is that this is the stuff that rallies are made of.

In the past two weeks silver has shot up from 12.75 to 13.75, a return of 7%. How many investors do you know who bought at 12.75 two weeks ago. The reason is simple and is also integral to understanding the advantages of long term investing. The greatest rallies usually come both as a surprise as well as during a blurred vision of opportunity, where technical charts become useless and commentary on the matter has vanished.

A) Great Fundamentals – With a market that has been in a dominant position for almost 40 years now, when supplies have been diminishing while uses and demand have been soaring.

B) Neutral or even Bearish sentiment – While Central Banks were unloading tons of gold – and literally, stock markets have been tearing to new highs, economic data seems complacent and even funds such as the GLD have been selling, sentiment has dropped together with the stock price. This couldn’t be more bullish.

C) Strong Buying – As we know many funds are buyers of accelerating prices or “momentum investors”. They usually buy only once a trend is well in play. We know however that doing this knocks of both ends of a rally which is where most of the gains are made.

Another interesting issue to note is that the Gold/Silver ratio has fallen substantially from 51 to 49, implying that there has been an increased emphasis on buying silver in particular.

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