Reflation's Silver Lining

By Brad Zigler | December 04, 2008 | 11:35 AM | 0 Comments

Real-time Inflation Indicator (per annum): 7.8%

Silver was beaten up in the overnight markets after Wednesday's 1.3% sell-off on the COMEX floor. At last look, the expiring December contract was off another 23 cents, or 2.4%, at $9.335 an ounce in electronic trading. Earlier, silver was fixed at $9.58 in London.

Spot silver's trying to make a stand here to defend the $9 level, though technical signals point to continuing weakness.

 

London Silver Fix

 

We've examined the relative strength of silver versus gold in previous articles, most recently "Silver And Oil: Two Sides Of A Coin." Silver has broader industrial uses than gold. Its industrial fundamentals can and do sometimes trump its case as a precious metal.

Overhead resistance is at $10.52 for London spot metal. Support might be found at the $8.88 level reached on Oct. 24. If that bulwark is breached, there's a chance for silver to aim $4 lower.

What kind of a chance? Hard to put too fine a point on it now. Let's just call the odds "small."

Now, relax. I don't mean to say that a sell-off, to whatever level, is anything more than a temporary price excursion. Sooner or later, those IOUs issued by the Treasury will have to be redeemed. That spells reflation. It may take until the second quarter of 2009, however, to see that take shape in earnest.