May Day: The Asian traders took a disliking to silver and gold late last night.
Check out this 48-hour silver chart:
The drop occurred before the death of Bin Laden was announced.
Spot silver lost 12% in 11 minutes shortly after the open of Asian trade, while spot gold fell 2.2% in 40 minutes.
The drop may have been triggered by an increase in margin requirements to trade Comex silver futures. Or what is a more likely scenario, the metal was overdue for some profit taking.
Our good friend and silver trader Luke Burgess saw the price of silver was going parabolic and banked a 966% gain on a silver ETF just last week.
You know when you see a chart like this you have to take some money off the table...
One-Year Silver
This is called a parabolic or “blow-off” top. It is a chart pattern to avoid. It usually comes out of a basing pattern (October 2010 to September 2011), and then over-extends on a surge in volume.
Notice the volume spike of last night. These blow-off tops often reverse in the tenth or eleventh day of trading after a breakout. Look for the price to retrace 33% or 50% of the gain before heading higher.
At the open in New York, silver was trading down $2.57 to $45.37 a troy ounce; gold was down $8.90 — or 0.6% — at $1,556.80.
Don't get me wrong; the silver and gold bull markets are far from over. There is a season for everything in this market, and if the stock pattern holds true, you will be able to buy silver at a nice discount over the next few weeks.
As I mentioned, Luke Burgess has owned the silver trade for the past two years. He will get you in for the next leg up.
Time to Buy Copper
Copper is due to run next.
As we saw with silver metals, copper will trade sideways for a year to a year and a half before breaking out to new highs...
Since December 2010, copper has been in a tight range between $4 and $4.60.
Copper Mergers Heating Up
On April 26, Barrick Gold Corp announced it would buy Equinox Minerals Ltd. for roughly $7.68 billion. This will give Barrick a copper mine in Zambia and a copper project in Saudi Arabia. Barrick beat out the Chinese consortium, Minmetals Resources, and their $6.66 billion offer.
Bidding for assets is a signal that companies in the industry think prices will be higher in the future.
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A few weeks ago, Rio Tinto Group said it expects “China and additional emerging markets to develop more quickly than output of the metal, which is valuable for housing and appliances. This year's deficit might run as high as 500,000 tons.”
Furthermore, International Copper Study Group (ICSG) reported the most recent numbers showing a negative 20k metric tons for January compared to a surplus of 86 metric tons a year ago.
In a separate report released in April, ICSG forecasts global growth in copper demand to exceed global growth in copper production this year. The annual production deficit is expected increase to 380K metric tons this year, up +52% from 250K metric tons in 2010.
That could mean a sharp increase in the price of copper as the world economy steps it up into high gear.
I am currently researching copper companies in Crisis & Opportunity, and will be putting out buys when the price hits $4.10 a pound over the next two weeks.
As we saw in 2006 and again in 2007 during the last commodity run, the prices of secondary metals ran after gold and silver. Traders tend to walk down the value chain into the more speculative metals...
Copper is one that fits these criteria.
Molybdenum, uranium, and nickel are worth putting on your radar as well.
Talk to you soon,
Christian DeHaemer
Editor, Wealth Daily
