Why Not Silver, Too?: Dave's Daily

While gold continued its steady rally to new highs, silver continues to put on a show.
By Dave Fry ,

Goldfinger may "love only gold" but methinks he's more versatile. While gold continued its steady rally to new highs Monday, silver continues to put on a show rising nearly 3%. What's driving this? Some suggest there's still trouble with JPMs short position whether that's old news or not. Further silver bulls argue silver should be priced at its historical price ratio relationship to gold at around 18-1. If that were the case we'd be pushing $80. Finally, has Bernanke and the Fed given the green light to higher prices by saying POMO could increase if necessary?

During Bernanke's 60 Minutes interview he stated he could reverse inflation in minutes if the Fed chose to raise interest rates. Since he said there was no inflation during the interview and added the possibility of greater POMO it seems he can't reverse himself now.

Commodity exchanges will be pressured to raise margin requirements to cool markets. That can work spectacularly in the short-run anyway; but, the sense is silver is in short supply.

Look, I've been in the business long enough to remember the Hunt Bros debacle in the late 70s. I also remember having a Commodity Trading Advisor being long silver futures in the mid-80s. Our clients were long at $8 and I went into a meeting with the price at $12. There I pondered what color my new Porsche would be and smirked at my peers. (Do you guys know how smart and sharp I am?) But, alas, I left the meeting an hour later to find silver back at $8. Given the experiences, I'd advise caution.

Europe still has its ubiquitous problems that seem never to end. It's scary in the sense the current episode is reminiscent of the "drip, drip, drip" of bad news from late 2007. This still troubles investors as they flock to precious metals.

Meanwhile back to conventional markets things were rather slow unless you were one of the gang of

500 scam artists

preparing for perp-walks.

Light volume must have set a record for a typical Monday in December. Breadth was positive to flat. 

Continue to U.S. Sectors, Stocks & Bonds

Continue to Currency & Commodity Markets

Continue to Overseas Markets & ETFs

The

NYMO

is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

The

McClellan Summation Index

is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

The

VIX

is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

Continue to Concluding Remarks

Silver and precious metals are rallying strongly. Some might think the move is parabolic and it seems so, yet there are fundamental reasons for the rise. Nevertheless the daily moves should be dramatic and risk averse investors are advised to be cautious.

There's not much really to comment about with equity markets when there's very little trading. When there's only 98M shares traded on SPY there's little more to say.

Let's see what happens. You can follow our pithy comments on

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Disclaimer: Among other issues the ETF Digest maintains positions in: SPY, MDY, IWM, TNA, QQQQ, QLD, XLI, XLF, FAS, TBF, GLD, DGP, SLV, AGQ, DBC, DBA, MOO, PHO, EFA, EEM, EWA, EWJ, EWY, EWC, EZA, GXG, EWZ, RSX, EPI & FXI.

The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell any security.  Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period.  Chart annotations aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at

www.etfdigest.com

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of

ETF Digest

, Dave's Daily blog and the best-selling book author of

Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management

, published by Wiley Finance in 2008. A detailed bio is here:

Dave Fry.

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