Silver Doesn't Follow Headline Logic

The buy signal of early 2011 has passed for silver. Today's money flow setup is probably best characterized as neutral (statistical unrevealing). Neutral, however, can easily translate into "Silver will Tarnish" to affect a response from computerized trading. It doesn't take much fear-based technical selling to turn neutral into buy. Don’t ignore the possibility that neutral transforms to sell as prices rise even further. As always, the point being follow the money and ignore the rest.

Silver London P.M Fixed and the Silver Diffusion Index (DI)


Headline: Why Silver Will Tarnish

Silver hit a major milestone on Friday, breaking through $40 an ounce for the first time since 1980. But the metal's powerful rally may soon be coming to an end.

It's been leaving gold in the dust. Silver prices have doubled since August, while gold is up 20% in the same span. Over just the past three months, silver has shot up 50% compared with 11% for gold.

Both metals are attractive to investors because they're known to be "safe havens"—assets that historically have retained their value in tumultuous times. Investors so covet safe havens right now that they've been more than willing to try silver, long considered gold's poorer cousin. Result: Silver prices have seemed headed toward the all-time highs achieved in January 1980, when the larger-than-life Hunt brothers of Texas tried to corner the market.

DON'T BET ON NEW HIGH. While the Hunts put the squeeze on supplies, it's demand that's driving the metal higher this time around. But demand for silver is more fickle than demand for gold in a couple of ways, and that is what makes further strides in price a tenuous bet, at best.

Source: online.barrons.com