Silver forecast for the week of December 3, 2012, Technical Analysis

The silver markets had a negative five sessions as we continue to pullback from the $35.00 area. However, the most recent pullback in the larger consolidation area between $26.00 and $36.00 has been much shallower than the previous ones. In fact, we never made it back down to the $26.00 level, and this is indicative of a market that’s more than likely ready to continue higher.

Having said that, silver is one of our favorite markets. This is because we know that the central banks around the world will continue to flow the markets with liquidity, with the Federal Reserve being the most notable one. It seems that interest rates are going to be extraordinarily low in the United States until at least 2015, which should continue to devalue the Dollar against hard commodities such as silver and the long run.

It is because of this that we own physical silver, and also like the SLV ETF as a core holding. We simply use these futures markets as a way to boost our returns and it already long term trade that we find ourselves in.

The Federal Reserve looks set to announce more quantitative easing in December, and if they do silver market should absolutely skyrocket. The $36.00 level is a significant barrier, but we think if we can get above that, the market will shoot towards $40.00 in very short order. There is a cluster of significant resistance between $40.00 and $43.00, so at that point time and a pullback would be expected.

However, we believe in the long-term story for silver because not only is a precious metal, but it is also an industrial metal that has high demand. After all, 90% of silver that has been pulled out of the ground has been used. It isn’t quite like gold, which tends to be used for jewelry more than anything else. In other words, gold can be recycled relatively easily. Silver on the other hand tends to find itself in electronics, and other sorts of difficult machinery for recycling. In the long run, we feel that silver has a much brighter future than gold on balance.