Friday, July 28, 2006 at 08:14AM
Buy on the dips is conventional wisdom and usually very good advice; however, we believe an upward explosion in silver stocks is coiled up and ready to rocket.
Some of our silver stocks are a few points off the pace at the moment but that does not worry us. Any chosen entry point into the precious metals market will be accompanied by volatility, some violent swings will occur and you have to decide whether or not you want to ride them out, not an easy decision. The fluctuations around our stock picks are in our humble opinion, of a minor nature so we feel relatively comfortable with them.
What does interest us is the correlation between the movement of silver prices and the movement of silver stocks. If we take Coeur d Alene as an example and compare its progress with that of silver what do find?
The current silver price is $11.38 compared with silver in January of $9.0, a 26% increase in price. The current CDE price is $4.59 compared with silver in January of $4.0, an increase of 14%. This clearly demonstrates a lag between the two. We expect the silver stocks to make up this ground on silver prices in the very near future.
As a strategy, one could continue to purchase on an on-going basis as a form of accumulation. However our interpretation of the market is that we should have most of our cash invested by now, retaining a few bucks should the market present us with a major aberration.
Taking a quick look at the chart below of silver, we can see that the 50-day moving average is trending down towards the 200-day moving average. The next four weeks or so should be very interesting if this convergence continues, no doubt with many commentators saying get out, etc. We are not of that opinion and expect the upward trend that commenced after the recent sell off to continue.
Coeur d Alene is traded in Toronto under the symbol CDM and in New York under the symbol CDE.
28 July 2006