Silver Up-Day #2!

About two weeks ago a friend of mine expressed interest in buying silver. (Notice how I say “expressed interest in buying” as oppose to “in owning“, but I digress). So I said to him that he’d better hurry up. I explained that silver may rally just as fast as it fell, in other words fast. I told him that I expected silver to jump in large spreads back towards its physical market price (somewhere in the vicinity of $14-15/oz).

Well, today was a second such up-day, with silver up over $1. Silver has rallied from 10.50 to over 13.50 in less than 4 trading days! I could see the trend continuing at least till 15.00. Then its all about momentum. If traders get on board, accompanied by real demand for physical metal, who knows how high prices can go.

“Just Another Bearish Monday”
That was the headline for Marketwatch. Is the Street finally getting bearish? Are they beginning to expect bad news? Have they thrown in the towel? Has sentiment finally turned to a selling bias? If the answer to any of the above is “yes” then it is predictable that our 8,000 target is in sight.

Dow vs. Gold
But let us not focus on mere nominal terms, for what is a Dollar other than another Dollar? Instead let’s focus on our primary trend basis: The Dow/Gold ratio.

What I like so much about it, is that we are able to (a) put things into perspective, regardless of whether currency inflation or deflation occur, and (b) see things without the clutter of irrelevant factors. The Dow accurately represents the highest class of business and commerce, the blue-chips of industry. And Gold the ultimate hard currency, the antithesis to growth and business, stability and wealth preservation.

Profits Upon Us
The ratio as we speak is at 12.15, down from 14 last week. In other words the Dow 30 has fallen 13% in real terms. If we look at an historical chart we can see that the greatest opportunity for profit stands as the ratio slices through the double-digit line into the low singles. We are amidst that opportunity no matter how bearish things may seem. (I should have written this three weeks ago!)

Long and Short
If there is any sure money to be made in this market ,the strategy goes like it has for 8 years now: Long Gold, Short Debt. Unfortunately for many, the chance to short may now only be done in relative action, through ETFs and funds, and not through actual selling, as the SEC has banned short selling on 799 institutions. Thus operations are now more symbolic and passive, and less manipulative and active. (The term “manipulative” I use consciously, and that’s a discussion for another time).

It’s a short and simple matter of time before hedge funds come piling back in to profit. With the Dollar rally now stalling, Gold in a definite uptrend, warning of an Al-Queda “October Surprise”, accompanied by Oil’s tremenous rally (who saw that coming!), the short-lived hope for a market reversal has closed.

Grab a bar of silver or gold, Do what makes sense and not what you’re told.
To preserve your capital is rule number one, But if we make in the process its even more fun!

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