Half way through June already and the weather is getting warmer – those in the financial markets know this typically means softer markets, investors spend less time in the markets. However, what investors may not be aware of is that June is historically silver’s weakest month. And this year could be the one that you want to pay particular attention to.
Looking at silver's seasonal chart, you will notice that after falling in June, silver tends to begin to trend higher in July, and particularly in September. On that basis, any current weakness seen this month should be viewed a major buying opportunity.
Where is the market right now?
Since declining, along with gold, last year, silver has not gone near the price of $28 it held prior to its fall. Whilst it might look bearish to those looking into the markets for the first time, there are some key technical and fundamental factors that have set this month’s potential to be an extremely profitable chance to gain exposure to silver whilst you still can:
1) First, the low in silver was made last June ($18.20 per troy ounce).Now almost one year has passed without any new low being made, despite everything possible being thrown at the precious metals. The fact that they have stayed resilient and held above the lows shows real strength by the precious metals.
2) Given the huge amount of short positions (which I highlighted in my previous article had increased from 9,000 this time last year to over 40,000 to date), those responsible must be getting very nervous. A significant short squeeze is a real possibility in silver. So as I see it, the shorts in silver - and gold too for that matter - are walking on a knife-edge, overexposed in the face of continuing growth in physical demand that has continued increasing every year for the last decade in spite of price volatility.
3) Sentiment in the precious metals remains near rock bottom. This level of apathy toward a heavily undervalued asset - and silver is clearly undervalued - is more typically another technical sign that a big rally is imminent. Given that silver surged 6% higher last week and gaining, I think it has already begun.
The key for silver will be to clear the $20.30 - $20.50 area.
Those levels may look far away, but as we have seen again and again, the precious metals can skyrocket in the blink of an eye. So that resistance level could be passed quickly. But until those levels are taken out, the base building in the silver will continue and is a perfect time to buy while you can.
The US Federal Reserve meeting concludes on Wednesday and we can assume it doesn’t want any surprises, meaning that they will work hard to show that their policies are working. But they are losing the upper hand.
With the Middle East exploding from Syria and now Iraq, the situation in the Ukraine tense, and other region tensions flaring up across the world, geopolitical uncertainty continues to fill the headlines. And now oil is nearing $107, with strong suggestion it could hit $112 a barrel if supply fears worsen, something fragile western economies are too weak to handle. It is not surprising then that the precious metals are showing good strength in this environment.
The Fed and other central banks already have enough problems because their failed policies are becoming more apparent every day as economies are yet to produce the promised growth. But it is exactly this kind of environment - when few are expecting fireworks - that could witness a major rally in the precious metals.
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