Sunday, September 16, 2007

Silver May Begin to Outperform Gold Part 2

We can take this data and graph it, so that it becomes much easier to interpret. What I have done is I have taken a chart breaking down the positions of each category, and fused it with a standard candle chart of the commodity. The following chart is of silver:


The areas with the red boxes represent times when the large speculators are at dangerously long positions. These correspond to the red areas of the candle chart above. The green areas represent times where the commercial traders have reduced their short positions as to give us a bullish signal.

Currently, the commercials, which, again, represent the actual producers of silver, are holding a very small short position. This means that they may know something that we don't. Furthermore, the large speculators have essentially abandoned silver. Their position is actually less than the small speculators, which, obviously, hardly ever happens.

Now, let's have a look at the Gold Commitment of Traders chart:



As you can see, the commercial interests have aggressively increased their short positions in gold, much more so than silver. This is essentially why I believe that silver will begin to outperform gold. Thanks for stopping by.

6 comments:

Dereck said...

Danny,
Hope you haven't missed me. I've been able to keep up on your blogs via your feed, but my evening window during which I can drop in has been reduced. I wanted to tell you that this analysis of silver is nothing shot of completely brilliant. You're connecting dots I never would have imagined could be connected. Excellent!

Danny Merkel said...

Hi Dereck,

I still don't quite understand what a feed is, and I did not even know that my site had one, but I'm glad that you figured things out. I'll get up to speed on that soon.

Anyway, thanks again for the kind words, and I'm really pleased to see that these charts made sense to you. I'll try to post more of these in future posts.

The Word said...

I have to agree with the previous comment:
"this analysis of silver is nothing shoRt of completely brilliant."

One request and a helpful hint:
Request:
If silver is going to catch up to Gold, which Canadian security(ies) might be appropriate to participate. In other words, which company(ies) are more leveraged to silver price momentum?
Hint:
Go to:
http://www.download.com
and pick up Sharpreader v0.9.7.0.
It's free and you will see that its a time saver to follow your favorite blogs. You won't be able to live without it and trying it on your sites will explain the comment about your feed.

The Word

Danny Merkel said...

The Word,

That is an excellent question, and one that I was looking into this afternoon.

Two companies that come to mind are Silver Standard Resources, ticker SSO.to and Silver Wheaton, SLW.to.

I know for a fact that SSO.to is completely unhedged, which was what I was looking for, so I may pick up some shares of this company next week. SLW.to looks just as good though.

If anybody has any other silver miners that are leveraged to the price of silver, let us know.

RedGoldCU said...

Nice job Danny. I think you may be pushing the envelope a little, and a bit early for your normally conservative calls. But that does not in the least mean you are wrong. I too am a "gun slinger" at times!

It seems you're always looking for a new or additional indicator. Here's one I just thought up for you to follow. This would seem to be a good indicator of "mom and pop" sentiment- on physical silver, and people actually putting their money where their mouth is.

How about tracking the actual sales of 100 oz. silver bullion bars on Ebay? Very easy to do, and keep track of.

But then the -big question- remains... Do we accept strong prices and completed sales as bullish, or do we FADE "mom and pop?" I'll leave that one for you maestro. (:

All the Best,
Redgold CU

Danny Merkel said...

redgoldcu,

I really appreciate your comment. Your idea of tracking ebay sales sounds interesting. Perhaps one strategy would be to determine whether silver was selling for a premium or discount relative to spot prices on ebay. I think that may be a good way to judge sentiment, although it would be a lot of work.

Another way I was experimenting with was looking at the NAV of a gold stocks ETF, and seeing if it was higher or lower than the market price. When the ETF was trading at much higher levels than what it should have been worth, that seemed to have indicated greed. More experimentation is needed on that though before I can write a post on it.