The Best Thing About Gold is Silver

By Chip Hanlon | September 21, 2007 | 4:22 PM | 2 Comments

About a year and a half ago, I wrote an article for TheStreet.com suggesting that the rally in precious metals was just too parabolic, that a nasty correction was coming.  In retrospect, the call wasn't bad since the metals did get slaughtered soon after and were essentially dead money for the next year-plus, but the article was widely derided by the metals crowd; that sort of commentary immediately gets you voted off Gold Bug Island (technically, I had already been booted in December of '04 when I called for a lengthy counter-rally in the U.S. Dollar--one just doesn't say such things).

All that said and as much I get a kick out of the end-of-American-Empire-types who make up part of the gold crowd, I suspect those types have more good times ahead of them in the short-term.  Why?

Silver.

If you go back and read that Street.com essay, a big part of my case revolved around the action in the "poor man's gold."  Silver just happens to typically be a great marker of speculative excess in the precious metals market; when it goes flying, you can bet the last drop of money--the smallest, least sophisticated players--is finally in and the move is about over.

So, we just haven't  seen such action recently.  As gold has broken out to new multi-year highs, silver has not even come close:

Far from being a negative for the precious metals, this is a good thing; at the very least, it does not indicate speculative extremes have been reached yet.

Add to that something I wrote on September 6^th, again at TheStreet.com, "I find it worth holding a neutral (as opposed to over- or under-weight) position in case real estate/economic numbers continue to tank, the Fed cuts by 50 bps and other central banks get in on the act. Also, I sort of like the way gold looks from a long-term standpoint; since writing the blowoff article early last year, I actually like what gold has done since: essentially, we've seen that extreme overbought condition worked off in a sideways manner. I really like that action and suspect it might be bullish," and you can see I think conditions are still supportive of high gold prices in the short- to intermediate-term (see that gold bugs: I said something nice about the shiny object of your affection!).

And our own chief technician here at Delta Global, Bruce Zaro, has a price target of $860 on the metal at the moment.

Bottom line is this: we've seen quite an explosive spurt in the price of gold.  If it keeps on rocketing and silver joins the party, it'll be time to get worried.  Should gold pull back from this $730-ish level, however, it will probably be one to buy.  Investors can keep their eyes on GLD and SLV, the ETFs, as convenient ways to play such a buying opportunity.

Position disclosure: GLD, SLV

looking back very nice call in retrospect mr hanlon Submitted by jsjgold on Thu, 2008/01/10 - 10:45pm » reply |

Chip,Looks like Silver is Chip, Looks like Silver is headed higher after reversing a series of lower tops and bottoms. Important break at $13.00 that violated the bearish resistance line and changed the trend to postive.   I think the old high of $15 is going to be challanged.....longer term $15.50 a possibilty. However its has had a good run from the distressed August bottom. Here is the chart; Submitted by Bruce Zaro on Mon, 2007/09/24 - 1:18pm » reply |