Patrick MontesDeOca: As the U.S. Silver market opened on December 31, 2013, more than 7,500 contracts were sold pressuring prices to a new low of 18.72 during the early morning session. Upon which level it discovered a massive support of physical buying interest that propelled the market to more than a $1.00 move higher off the lows in less than 90 minutes in fast trading conditions. A massive short covering took silver to a high of 19.825, and closing at 19.425 as I write this report. This is a clear sign that price for the third time this year has identified where the floor of support has been set by the real physical demand and market value players.
For reasons that differ other than the objectives in a real free market enterprise (that uses the basic metric measure of price on real supply and demand data), the metals (paper futures markets) have distanced themselves from traditionally applying and following this basic law of economics 101.
This week, our LIVE Trading room at the Equity Management Academy published a recommendation for our subscribers to purchase silver at 19.03 or lower. Subscribers received this information yesterday for today’s action – so we were well prepared to execute our buying trigger points today December 31, as indicated on the report.
In a recent report published on Seeking Alpha, I commented we were expecting some kind of bottom to take place between December 23/24 and that signal is still very valid as the low today successfully tested the previous low of 18.89 made on December 5, 2013. We were prepared as the window of opportunity to cover our shorts was there. I am not making any claims of being able to pick tops and bottoms by any stretch of the imagination but by using The VC Price Momentum Indicator, we have averaged a 100% gain in profits for 2013. This is documented in our LIVE track record performance for 2013, and that speaks volumes in itself.
Our published weekly VC Price Momentum Indicator posted on December 29, recommended to cover shorts at 18.97 on a weekly basis and reverse to a long position using the 18.97 as a weekly protective stop loss. A close below would usher the possibility of testing the 17 price levels. If this level is reached, I would call it a divine gift, as prices are well below the cost of production and could become very difficult to actually purchase physical silver without a large premium cost attached to it. This would inevitably precipitate a self fulfilling prophecy of creating a shortfall in production.
With the price well below the cost of production and the long-term cycle in interest rates changing (higher rates), it might become a very difficult environment to finance future production. As prospects for global economic growth increase, this will support a record physical demand to continue to increase in the foreseeable future. A shortage of supply mentality might develop as demand shifts to silver from a speculative demand base product to an industrial demand based product, putting tremendous pressure on the shorts.