Chart courtesy of StockCharts.com

The short term outlook for silver prices looks quit hazy at the moment as the world wrestles with a dramatic slowdown in economic activity, job loses, financial turmoil, bank and other bailouts et al. On top of these very difficult times we have to deal with more and more government intervention as the civil servants expand their powers over the private sector, a sector that they themselves have little knowledge and almost no experience.

As economic activity contracts the demand for silver contracts as fifty percent or so of all silver mined is absorbed by industrial uses, however, as silver is largely a by-product of mining base metals and some of those operations have closed, then the supply of silver is also contracting. So, we have supply and demand in a contraction mode for now, against a back drop of economic contraction and an ever looming shadow of political intervention. As we scan the landscape for indicators and pointers we find that we have a massive diversification of opinions proffered by eminent analysts and researchers. There is the deflationary camp who are convinced that they are correct and the inflationary camp who are convinced they are equally correct even though they hold views which are completely opposed to each other. Some are predicting that the banking sector will go to the wall and others are predicting a return to the glory days of bank shares at fifty dollars a pop. If we try to keep an open mind and read as widely as we possibly we can detect that the full slate of possibilities exists out there, even though they are based on pretty much the same the data. It all boils down to matter of interpretation.

At the risk of sounding extraordinarily dull our take on it is that we will see a contained volatility, silver will be bouncing around but within a confined range and moving sideways rather than moving up or down. This period will last from now until the end of August where we expect silver to be at or around the $12/oz level. By the end of the summer we should know that GM for instance has entered into bankruptcy and the some of the banks have been nationalized or not, the DOW may have finally sold off and established a bottom etc. The removal of these uncertainties will clarify the picture for all of us and hopefully the future will be a tad easier to forecast.

The short term choppiness may present us with the opportunity for the occasional ‘hit and run’ trade which we will publish as when they become apparent. However we do intend to maintain our core position regardless of the volatility as we view silver and gold for that matter, as cheap at todays prices and believe that the best is yet to come.

So hold on to your hard hats and your precious metals producers and be prepared to hit choppy waters so that you wont be shaken out of your positions prematurely.

Trading decisions belong entirely to you as your circumstances are different from ours and we trade to suit our investment criteria and cash position.

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