Friday, January 7, 2011

James Turk - New Buyers Taking on Silver Shorts is Very Bullish
With the ongoing consolidation in gold and silver, King World News today interviewed James Turk out of Spain. When asked about the fact that trading in the silver market has changed in recent months Turk commented, “One other indicator that the game has changed is that Comex open interest actually increased on Wednesday’s big takedown. What this means is that all of the silver shorts that are being put on are being met by new buyers.”

Turk continues:
“In other words there has been no net long liquidation, which one would expect on a big price drop. The bottom line is that it looks like new buyers are willing to take on the silver shorts, which is very bullish.

When I was reading the KWN interview with John Embry I was nodding in agreement because when I did my annual forecast this year, I said to expect the low price of the year in January, possibly even the first week which is broadly consistent with what John was saying.

If you are looking to accumulate under your ongoing program, don’t hesitate, buy right here. A couple of months from now you are going to look back on this price and be happy that you bought at these levels.

If you are looking to trade here, this is probably also a buying opportunity. But be mindful of Friday afternoons when the markets are notoriously illiquid which therefore enables the shorts to paint the tape. On these occasions in the past, buying the Friday close has been a good way to play these markets.

Remember, these corrections are designed to shakeout the weak hands, and if at all possible to get the black box trend followers to reverse their positions from long to short. These traders using mathematical models have been cannon fodder for years, up until the last several months. The charts have shown however that the game has changed.

But in the midst of all of this volatility, we need to focus on the big picture, which is both gold and silver remain relatively undervalued. They continue to be good assets to buy because of central bank policies like zero interest rates and quantitative easing which debase the purchasing power of national currencies.

As an example Eric, we have just seen a report that inflation has driven the world food price index to an all-time high. This is what I have been trying to convey to King World News listeners and readers, the purchasing power of their currencies is being steadily eroded, and the best way to protect yourself is to own physical gold and physical silver.”

There is a fascinating bull/bear battle developing at the $30 level on silver. Eventually, when $30 silver is taken out on the upside with conviction, we will see some fireworks to the upside. A solid breach of that $30 level should mark the beginning of the next upleg in both gold and silver. As James said, just continue to accumulate each month and hold for the long-term.

Eric King

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