With the price of silver near $17, today James Turk told King World News that the massive silver base may be preparing to explode higher.
June 11 (King World News) – James Turk: “As KWN readers know, Eric, I’ve been beating the drum on silver for quite awhile now. And I’m going to beat the drum again today…
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James Turk continues: “The reason is simple. There is a lot of value there, particularly when you consider that silver is the only commodity in the world that is still well below its 1980 record high. So we need to look past the stranglehold that has gripped silver – and gold – these past few months. Importantly, strangleholds don’t last for ever, and indeed, there are signs that silver is coming to life.
Comex open interest expanded 20,000 contracts last week on a 2% jump in the silver price. That spectacular OI jump is an indication of two things. The fact that it occurred on a relatively small price increase shows the dogged determination of the shorts to keep their grip on silver and keep capping its price. But it also shows something else. Silver is not that far from a record high in open interest. That it jumped by that much in one week is a good indication of the huge amount of speculative money moving into silver in anticipation that the short’s stranglehold is about to be broken.
Gold/Silver Ratio Contracting
I also like what is happening to the gold/silver ratio. It is always a reliable leading indicator. The ratio has been over 80 most of this year, meaning it took 80 ounces of silver to equal one ounce of gold. But after topping out at 82.4 in early April, the ratio has been falling and currently is about 77. A falling ratio means silver is outperforming gold, which is a bullish sign for both precious metals. This outperformance occurs for a reason.
The silver market is much thinner than gold, mainly because the above ground stock of physical silver is tiny compared to that of gold. So when money comes into the sector, these flows have a greater impact on the silver price than on gold. In other words, silver is more sensitive to money flows and outperforms gold in precious metal bull markets.
Also, traders who are ‘old hands’ in the precious metals market know about this relationship between gold and silver. So these leveraged traders target silver in the expectation of outsized gains relative to gold. I don’t know when or how the stranglehold on both precious metals will be broken, but it will be broken eventually. And the declining gold/silver ratio means it may already have begun.
Beware The Fed Meeting?
Also, I have been mentioning overhead resistance at $16.80. Spot silver today closed in London and New York above that level, indicating a breakout may be starting. However, a word of caution. Today’s big jump could be a head-fake. It could be just a 2-day squeeze with weak-hand shorts exiting to avoid getting hit by Fed news on Wednesday or an ECB announcement about QE on Thursday. Then again, maybe it is real this time.
That’s the thing about markets. You can’t predict the future. All you can do is buy good value, and that’s what silver is at the moment. It is, however, worth noting that despite the Fed’s interest rate hikes over the past year or so, gold and silver are holding their own. The reason is that the market is beginning to recognize two things: First, real interest rates – those adjusted for a true rate of inflation – are negative, and any increase in rates by the Fed on Wednesday will not change that reality. Second, interest rates cannot go any higher because it will kill the economy in an important mid-term election year. The Fed will not risk its future existence and suffer President Trump’s ire by raising interest rates further.
Keep A Close Eye On The Trading Action
So here’s what to watch for. Let’s see how gold and silver respond after the FOMC interest rate hike due to be announced on Wednesday. If gold and silver do okay, I would take it as evidence that this new uptrend in silver is real. And if so, gold and the mining stocks will quickly be following silver higher.”
KWN has now released the powerful audio interview with London whistleblower and metals trader Andrew Maguire and you can listen to it immediately by CLICKING HERE OR ON THE IMAGE BELOW.
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