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Submitted by Adam Hamilton:
This Tuesday, silver surged 4.4% higher on strong Asian bidding in
parallel with gold. The catalyst was fascinating, China finally
launching its long-awaited yuan-denominated gold benchmark.
China is the world’s largest gold producer, importer, and consumer, a
commanding position that should grant it much bigger say in the gold
industry. The new yuan gold price will ultimately challenge London’s
century-old hegemony.
The prospects of more Chinese with their deep cultural affinity for
precious metals having easier price discovery and access catapulted
silver into bull-market territory. Its previous best close of
2016 about a week earlier was only 18.5% above its 6.4-year secular low
in mid-December leading into the Fed’s first rate hike in 9.5 years.
Tuesday’s big Chinese silver rally boosted this young upleg’s gains to
23.7%.
That propelled silver decisively across that official
new-bull-market metric of +20%. Interestingly, silver was even faring
better than gold. While gold entered new-bull-market territory in early
March, at best as of the middle of March it was only up 21.0% from its
own mid-December 6.1-year secular low. While silver got off to its
usual slow start, it has already surpassed gold’s gains. This
outperformance will mount.
Silver’s new bull should surprise no one. Late last year, I extensively discussed the anomalously-low
silver prices and this metal’s resulting vast upside potential. In
early October I recommended a new long-term investment in an elite
silver producer to our monthly-newsletter subscribers. As of Tuesday it
was already up 208%, a triple in less than 7 months! I wrote about “Silver’s Deep Undervaluation” in late October.
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The bottom line is silver just entered its first new bull market in
at least several years. This was driven by a combination of speculator
silver-futures short covering and long buying, but most importantly
major new investment buying. Silver hasn’t seen investors start to
return in years, which makes 2016’s new bull look like the real deal in
contrast to recent years’ fleeting short-covering-fueled surges that
soon collapsed.
And once investors take the cue from gold strength to start migrating
back into silver, the resulting bull markets tend to run for years and
grow to monstrous proportions. With silver just emerging from such
anomalously-low price extremes relative to gold, it’s going to take vast
buying to mean revert its price back up to normal levels. So 2016’s
young bull is almost certainly just the early vanguard of a massive new
bull.
Adam Hamilton, CPA
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