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Is Silver Finally Going To Break Through
The Key Resistance Of $18.50 Per Ounce?
David Levenstein
27 August 2010
Last week, the price of silver tested the key resistance level of $18.50/oz but, failed to penetrate this level. Once again, the bullion banks seemed to put a cap on the price at this level. According to the latest Commitment Of Traders (COT) report, the four or less largest traders (Commercials or bullion banks such as JP Morgan and HSBC) are currently short 225,484, 000 ounces of a total net current short position of 268, 720, 000 ounces. This means that 83.9% of the total net short position is currently held by four or less traders. And, probably most of these short positions are held by JP Morgan. How is possible that one firm can hold such a concentrated position? Well I leave it to your imagination. Can you imagine what the regulators would be saying if this position was reversed and held on the long side and prices were being pushed upwards? In fact this is precisely what happened with the Hunt brothers in 1980. They were accused of attempting to corner the silver market and forced to liquidate their long positions, causing the price of silver to plummet from it highs. However, once the CFTC regulators impose new laws to prevent this type of action, further price suppression will be difficult and the price of silver should adjust to a more realistic level.
While industrial demand for silver is increasing, so is monetary demand. More and more investors are turning to silver as a way to protect the purchasing power of their savings. This can be seen by the increased demand for silver bullion bars and bullion coins in particular the one ounce US Silver Eagles which are experiencing record sales this year. This year alone, sales of the one ounce silver eagles have reached 22, 255, 500 compared with sales of 28,766,000 for the entire year 2009. In addition, new investment vehicles such as silver ETFs have come along, taking several million ounces of silver out of the marketplace.
As I have often mentioned, the fundamentals for silver are very bullish. Basically, it is simple economics… the higher demand and the lower the supplies, the higher price. Yet, you can still buy silver for less than a third of its previous high in 1980 while gold by comparison has reached and way past its previous all-time high which was reached in 1980 at $850/oz. Today, with gold around $1200 an ounce and silver hovering around $18 an ounce, the gold-silver ratio has climbed back to around 65 to 1. While silver was one of the best-performing assets last year, it is nowhere near its all-time highs of more than $50 an ounce. Silver would have to triple from here just to match its previous highs, and inn inflation-adjusted dollars it would have to go up almost ten times.
TECHNICAL ANALYSIS
From April this year, we can see that the level of around $18.50 has been a key level of resistance for silver. Each time, the price breaches this level, it is sold off. While the charts do not explain the reason and merely show price action, we know this is mainly due to continual price suppression by the major bullion banks. However, once the real demand/supply dynamics are allowed to ******** normally, we will see a price break above $18.50 amowed by a rapid move to the previous highs of $19.25/oz.
The Key Resistance Of $18.50 Per Ounce?
David Levenstein
27 August 2010
Last week, the price of silver tested the key resistance level of $18.50/oz but, failed to penetrate this level. Once again, the bullion banks seemed to put a cap on the price at this level. According to the latest Commitment Of Traders (COT) report, the four or less largest traders (Commercials or bullion banks such as JP Morgan and HSBC) are currently short 225,484, 000 ounces of a total net current short position of 268, 720, 000 ounces. This means that 83.9% of the total net short position is currently held by four or less traders. And, probably most of these short positions are held by JP Morgan. How is possible that one firm can hold such a concentrated position? Well I leave it to your imagination. Can you imagine what the regulators would be saying if this position was reversed and held on the long side and prices were being pushed upwards? In fact this is precisely what happened with the Hunt brothers in 1980. They were accused of attempting to corner the silver market and forced to liquidate their long positions, causing the price of silver to plummet from it highs. However, once the CFTC regulators impose new laws to prevent this type of action, further price suppression will be difficult and the price of silver should adjust to a more realistic level.
While industrial demand for silver is increasing, so is monetary demand. More and more investors are turning to silver as a way to protect the purchasing power of their savings. This can be seen by the increased demand for silver bullion bars and bullion coins in particular the one ounce US Silver Eagles which are experiencing record sales this year. This year alone, sales of the one ounce silver eagles have reached 22, 255, 500 compared with sales of 28,766,000 for the entire year 2009. In addition, new investment vehicles such as silver ETFs have come along, taking several million ounces of silver out of the marketplace.
As I have often mentioned, the fundamentals for silver are very bullish. Basically, it is simple economics… the higher demand and the lower the supplies, the higher price. Yet, you can still buy silver for less than a third of its previous high in 1980 while gold by comparison has reached and way past its previous all-time high which was reached in 1980 at $850/oz. Today, with gold around $1200 an ounce and silver hovering around $18 an ounce, the gold-silver ratio has climbed back to around 65 to 1. While silver was one of the best-performing assets last year, it is nowhere near its all-time highs of more than $50 an ounce. Silver would have to triple from here just to match its previous highs, and inn inflation-adjusted dollars it would have to go up almost ten times.
TECHNICAL ANALYSIS
From April this year, we can see that the level of around $18.50 has been a key level of resistance for silver. Each time, the price breaches this level, it is sold off. While the charts do not explain the reason and merely show price action, we know this is mainly due to continual price suppression by the major bullion banks. However, once the real demand/supply dynamics are allowed to ******** normally, we will see a price break above $18.50 amowed by a rapid move to the previous highs of $19.25/oz.
