Silver Prices On Track To Re-Test June Lows

The two charts below tell the story and it’s not a pretty one. Silver made a valiant attempt to rally at the end of June and managed to get as high $24.50/oz. This revival brought both relief and excitement to this tiny sector which had seen silver prices on a tear when it came close to the magical $50.00/oz mark. However, those heady days are rapidly becoming a distant memory.

Will silver have its day again, of course it will, but not just yet. This shake-out has been long and painful; characterised by the occasional rally which gave the silver bulls hope, only to be dashed by prices falling to lower levels.

The key indicators to watch are gold, the dollar, changes to monetary policy both in the US and across the pond in the Eurozone. The possibility of a negative interest rate in Europe will weigh on the Euro pushing it lower, which in turn will add upward pressure to the dollar. Then the inverse relationship (dollar/gold) comes into play and so gold prices fall. Now we all know that silver is in many ways different from gold in that it also has a large number of industrial uses, etc., however, it will tend to follow gold and head south.

Turning to the silver producers for a moment, those that have high production costs are running into stormy seas as their ability to make a profit will be severely hampered. If you must own them then stick to good quality producers that are better able to weather this storm.

It looks to us that 2013 will finish on a sour note for the precious metals sector so we must position ourselves accordingly and trade on what we know and not on how we would like this trading environment to be.

The challenge for us is to identify the low and then hit the acquisition trail with some gusto. As you know we don’t think that the bottom is in yet and if we can get it right then the profits should be spectacular.

In September 2011 the Gold Bugs index, the HUI stood at 630 as gold prices peaked, since then both have trended lower with the HUI losing about 65% of its value. The bottom has been called a number of times and after such a dramatic decline its difficult not to think that we are there now. However, as we all know the timing of any investment is crucial to its success and that is exactly what we are trying to do here, trying to pick advantageous entry and exit points. If you would like to know which stocks we are buying and selling please join us at ‘Stock Trader’ our premium investment service.