Abandon all hope ye who enter here! Spot the point of maximum pessimism in any market and you have the best point of entry. That was the maxim that made the great investor Sir John Templeton a billionaire well ahead of today’s fund managers.
According to the latest technical charts assembled by Clive Maund (click here) there is penty of reason to think silver prices are not only far from being without hope but are actually set up for a powerful rally as the shorts are sent scrabbling for cover. That is to say those betting silver prices will fall are going to be suddenly forced to buy, sending the price up fast.
Dog days
Mr. Maund also flags up an important seasonal observation that silver prices are usually weakest in June and look up in July and particularly in September. His conclusion is that any further downside in silver prices over the next two to three weeks should be seized as a buying opportunity.
Why is he so confident? Well for Mr. Maund it is all in the charts. Recent price action shows strong support for the silver price close to present levels. The 20-year chart still shows the uptrend intact.
Another chart shows that the previously huge short and long positions in silver in the futures market have been mainly eliminated. This is very bullish indeed as any futures trader will tell you. Also public sentiment towards silver is at a low point, and that is usually the starting point for a price rally. The price has to be low to be able to go up.
Demand for silver
On the fundamentals we are reminded by Sprott Asset Management that the demand for physical silver is still running way ahead of investment supply by comparison to gold. Investors are buying 50 ounces of silver for every ounce of gold while the available supply is in the ratio of 3:1.
A big shortage of silver is just a matter of time with such a ratio in play. Silver could still be the shock out-performer of 2013 rather than the dog of the year. It’s all in the technical charts if you care to look.
