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Expect Consolidation Then Higher Prices for Silver

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The metal has just moved above the medium-term declining resistance line.

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5. Dodgy loans are generally secured against collateral, most commonly real estate. Thus, a combination of strong credit growth and rapidly rising property prices are a reliable leading indicator of very painful busts.

High stock turnover, a rising number of new share issues, strong early trading gains, and the establishment of new stock exchanges are all classic signs of speculative euphoria. Meanwhile, the real action has been taking place in China's overheating property market. Over the course of the last decade, national home prices rose at annual rate of 8%. Commercial real estate investment grew by 121% last year. The total amount of floor space under construction in China is equivalent to the size of Rhode Island. The real estate market displays the classic symptoms of a bubble -- stretched valuations, rampant speculation, and frenzied new construction. Sooner or later this bubble will burst, says Chancellor.

What usually happens in times of economic turbulence and fear, when fiat currencies tank? Investors flock to gold and silver. Since I already covered the situation on the gold market, this time I'd like to focus on the white metal.


Source: StockCharts.com

As it was the pattern in August 2009, silver is leading Gold and precious metal stocks to the upside. The RSI is in the overbought area and suggests some temporary resistance, but it seems that the coming move lower won't take silver dramatically lower.

Please note that in September 2009, silver didn't drop visibly before the RSI indicator moved much above the 70 level, and this is what I expect to see this time too. Additionally, look how the 50-day moving average proved to be a strong support during both August 2009 and in March 2010. Should the history repeat itself once again, it seems that silver may move higher during the next few weeks.

On an immediate-term basis, it wouldn't surprise me to see a few days of trading sideways (or even lower) before silver resumes the rally, as it has just moved above the medium-term declining resistance line.

Summing up, the silver market may consolidate for the next several days, but it seems that the coming weeks will provide us with higher prices of the white metal.


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No positions in stocks mentioned.
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