Silver Report: Umesh Shanmugam

silver1Silver is a volatile beast, a scabby snake.It moves like a sidewinder on Adderall — that is, silver won’t flow in a straight line, but it is laser focused on where it has to go.And it’s going up.

The last major bull market for silver (prior to 2010, that is) was the 1970s.In the decade of disco, the price of silver climbed from $1.25 to $43.That’s a heck of a run. No wonder men on the make wore those heavy chains displayed prominently to entice the lusting females. There were not many young girls who could resist the enchantment of silver as it went up 3,440%. There are few who can resist it even now.

But as I said, silver did not rise in a straight line. Trees don’t grow to the sky, and investments are fraught with dangerous corrections…

Buying the Dips Pays Off…From 1970 to 1981, there were more than ten corrections where silver fell in excess of 10%.Three times it declined more than 20%, and once, in 1975, the price of silver fell more than 50%.But in 1976 it went right back up, recovering all of its losses to $6 on its way to $43 five years later.

That’s how silver trades.

More recently, as you can see by this five-year chart, silver jumped from under $10 in 2008 to all-time highs near $50 in 2011:


That type of rise was naturally accompanied by profit taking.

A 500% return is a good run by anyone’s standards, and it makes sense that it has come back to support. That support is right at $18.00 an ounce. We hit that price during the last week of June.

The two black lines (trend and support) show that silver is forming a multi-year pennant. The price should rebound off the lows and push back towards $25. It will then sell off and find a second bottom above $18 before breaking out of its downtrend.

That means you have about a 22% upside in silver over the next few months.

Of course, nothing is guaranteed…If it breaks below $18, you should sell.That said, you have a 20% upside and a 5% downside. The odds are with you.The fact that the MACD is buried helps the bullish argument as well.

Singapore Take:

I’m not the only one who thinks silver is a buy at these prices…

Singapore is building a 200-ton silver vault for rich Chinese who want someplace to store their money.The Indians are also buying precious metals. New laws and taxes aimed at supporting the rupee and reducing the demand for gold and silver in India have had the opposite effect (like they always do). The rupee is down more than 10% in the last few months and is the most undervalued of the world’s currencies, according to the Economist‘s Big Mac Index.

People don’t like seeing their money evaporate, so they put it in gold and silver.

Gold smuggling has always been a big business in India. Recently, it has increased. Arrests were at 32 in June up from four last year. The amount of gold seized during the first quarter was ten times the volume seized last year.

My advice is to buy physical silver both for a safety net as well as for price appreciation.

All the best for investing…

Umesh Shanmugam(purely my view)