Jame's Turk's latest from KWN examines the uber long-term bullishness of silver remaining in backwardation after a doubling in the past 6 months.
We agree with Turk. While currently down 10% in a much overdue correction, (and The Bernank is likely to attempt to intensify silver's sell-off with his comments at tomorrow's press conference) silver has barely begun its long term journey towards remonitization. Continuing backwardation means that investors would rather own physical silver than fiat dollars, regardless the price.
From King World News:
James Turk:
“There are some earthshaking events coming, that’s what the precious metals are telling us. That’s what the dollar chart has also been telling us and that is why I am expecting a waterfall decline in the dollar index. The dollar has a unique position as the world’s reserve currency and as people lose confidence in it they will go to other moneys they consider safer.”
“During times of trouble the natural reaction is to bring assets home. So as confidence in the dollar declines you might see an emotional knee-jerk reaction with people buying the euro even though that currency has serious problems as well.
But people who buy the euro will soon learn it is only a stepping stone to the only real safe haven which is gold and silver.”
“The important point Eric is that silver is still in backwardation. I mentioned to you previously in the KWN blog piece on April 1st of this year that if silver remained in backwardation when we neared the $50 area it would be a truly extraordinary event. Here we are with silver touching $49 in Asian trading this morning, yet it remains in a 63 cent backwardation from spot to December 2015.
I can’t stress enough how significant that event is. Over the past three months the price of silver has nearly doubled, yet the backwardation has not disappeared. Markets are not designed to work that way, the higher price is supposed to entice people to sell their physical and hold dollars instead. I think the market is quite clearly sending the signal that people would rather hold silver instead of paper money.
The bottom line is that as long as silver remains in backwardation, price declines will be short-lived, it’s also telling us that silver has not yet reached a top on this move.”
When asked about gold specifically Turk replied, “We have taken out $1,500 and we look ready to move higher. Often times when you take out a century mark it brings in a lot of new buying and that is what I expect to happen this time. I had not expected the gold/silver ratio to move in silver’s favor as fast as it has below the 35 level.
At on point in early trading today the ratio was below 31. That is telling me that silver is still leading the way, but when I look at the gold chart and the huge base that it has built under $1,500, I still conclude that gold is ready to rocket higher.”
