Some investors have declared a bull market in silver based on the seven month protracted decline, though fundamentals indicate otherwise.

January 9, 2012 – There’s a lot of news on the wires this week about the gold correction ending with support levels establishing above crucial levels as gold has popped up to $40 an ounce in intraday trading, but silver is showing signs of being a particularly valuable investment in the New Year. Silver, unlike gold’s corrections in September and December, has had a more protracted decline from its high of $47 an ounce in April and March of 2011. Some investors have declared a bull market in silver based on the seven month protracted decline, though fundamentals indicate otherwise.

The same mistake of thinking the market had entered bear territory was made and the belief is currently being recanted in the gold market. Any investor or analyst who went on television or tweeted that the gold bull market had ended, including those who foolishly sold their positions and liquidated their gold, is currently changing their story faster than a politician. The gains seen in gold this week make the temporary illusion of a bear market unpopular, even though the fundamentals always indicated we were, are, and will be in a precious metals bull market for some time to come.

The silver market has suffered a bit more on the news because of the way it looks on the chart. Seven months of decline doesn’t look good on anything. However, the fundamentals in place for the gold market are the same in the silver market and the price disconnect may indicate there are more gains to be made in silver. James Turk has reiterated a concept that silver may be the next Apple. Apple stock famously went from below $30 a share in 2004 to its current level above $400 a share. Before its steep rise from 2008-2009 on, Apple had very much the same kind of resistance and protracted loss. Pinpointing the winners that have this type of gain before the curve begins makes fortunes.

Silver, which is currently breaking through the supports at the $30 range, has the potential to outperform gold based on its current price levels. Analysts are comfortable enough with the end of the correction to begin again making price projections, including Citi, which has put out a report projecting gold at $2,400 an ounce. Based on that gain, the silver to gold ratio, currently at 55.4, would put silver at $43.32 an ounce, which is far lower than the recent all-time highs in late August-September.

The silver to gold ratio will, as the bull market continues, begin to correct and place silver at a much higher price. Historically, the ratio has been as low as 8:1, and while a projection of silver reaching that ratio to gold is a bit protracted, the overextension of the ratio cannot allow much more distance between silver and gold, possibly making silver a better performer this year than gold.

Shannon King

Senior Staff Writer –

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