Tech Talk’s Weekly Column in the Financial Post

(Available by paid subscription at www.nationalpost.com )

Scheduled release was delayed last week. The following column appeared last Tuesday:

Silver’s Shining Outlook

Silver usually has a period of seasonal strength at this time of year. What are prospects this year?

Seasonal Influences

Silver has a period of seasonal strength from the end of October to the end of May. Silver has gained in nine of the past 10 periods for an average gain per period of 21.4%. Although silver is responsive to changes in the price of gold, it tends to have a greater correlation with base metal prices that also have a period of seasonal strength from the end of November to May.

Chart courtesy of Brooke Thackray

Technical Influences

Silver is considered as “Gold’s poorer cousin” and usually lags the performance of gold in times when speculators are focusing on gold as a monetary commodity. The silver/gold ratio has been in an intermediate uptrend since last October. However, the focus of gold as a monetary commodity briefly reversed this trend in September and October. The ratio bottomed at the beginning of November and is showing early technical signs of resuming its upward intermediate trend.

Technical action this week in individual silver equities confirms that trader interest once again is moving from gold equities to silver equities. Silver equities, that broke key resistance levels this week, included Pan American Silver, Silver Wheaton and Silver Standard.

Technical action by silver remains positive. Intermediate trend remains up. Short term momentum indicators are overbought, but continue to trend higher.

Fundamental Influences

The price of silver is based primarily on:

§ Its store of value as a quasi-monetary commodity (like gold),

§ Demand from a wide variety of industrial users,

§ Supplies from producing mines.

Fundamental factors expected to influence silver prices between now and next May include demand outstripping new mine supply, increasing demand for industrial purposes as world economies improve and increasing demand for investment purposes triggered by weakness in the U.S. Dollar.

What to do?

A variety of silver based Exchange Traded Funds and equities are available for the seasonal trade. Possible Exchange Traded Funds that track silver bullion prices include iShares Silver Trust (SLV) and Horizon Beta Pro Comex Silver ETF (HUZ). In addition, Claymore offers a Silver Bullion Closed End Trust (SVR/UN) that currently is trading at a 12.8% discount to Net Asset Value. A wide variety of equities track the price of silver. Preferred strategy is to own higher quality silver producer equities and to avoid more speculative offerings.

Editor’s Update: Silver maintains a positive intermediate technical profile. Intermediate trend is up. Next support is at $16.11 U.S. per ounce. Its short term technical profile based on short term momentum indicators has been negative during the past 10 days. Stochastics already are oversold, but have yet to show signs of bottoming. Start of a seasonal “sweet spot” based on the seasonality chart above normally appears in the second half of December. Comments by John Embry and Ian McIvity at a lunch presentation on precious metals yesterday confirmed that the outlook for silver is significantly more positive than gold. Stay turned for a more refined technical entry point.

Chart courtesy of StockCharts.com www.stockcharts.com