Silver Breaking Out: SLV

Whatever got into the poor man's gold (that's silver) today (8/25/2010), it pretty much had a TA textbook breakout from a pennant or triangle formation.

Here's a 6 month daily chart of SLV, an ETF that tracks silver (and is supposed to be backed by physical silver, though no one with a working brain believe it). This breakout would put the target price of SLV at $20.84.



In a 3-year weekly chart, SLV seems to have formed a cup and handle, and the handle is shaped as a pennant. The target based on that formation is over $30.



I bought SLV when it was slightly below $12 in April 2009 and I have kept it ever since. Unlike my gold ETF (DGP, also a long-term holding), SLV has never dipped below my buy point. I have no intention of selling either of them anytime soon.

I've read analyses by gold/silver bugs saying silver will go much higher percentage-wise than gold. I've seen a target price of $100. Well, if J.P.Morgan Chase is forced to cover its silver naked short positions, that should do the trick...

Silver Correlates Better With Yield Rise Than Gold

But copper and iron are outpacing the yield rise. For now.

The stock market is responding favorably to today's auction of 30-year Treasury bond, although it has come off the high of the day. (It is possible it will end up flat, yet again, like the past 4 trading days.)

But yields have been rising on long dated Treasuries, most notably 10-year note and 30-year bond. Treasury/Fed/Government spin is that the economy is recovering. Maybe. Maybe not. I also hear a lot of inflation talk, even hyperinflation talk. Jim Rogers has said that Dow could go to 100,000 (or some outrageous number like that), and a quart of milk could cost $10.

Even the staid broker like Fidelity (I use them) puts out an article about how to profit from falling US dollar and rising inflation. Their recommendation: gold, silver, commodities. (They also recommend REITs and TIPS, but never mind them for now.)

So I plotted gold (via gold ETF GLD), silver (SLV), 10-year note yield (TNX) and 30-year bond yield (TYX) on a 6 month daily chart. (I threw in Apple (AAPL) just for fun, and surprisingly it correlates to silver pretty well.) First to note is silver's outperformance over gold in the past 6 months. Second, notice how well silver correlates with the Treasury yields. SLV is a thin blue line buried among TNX, TYX, and AAPL.

So the better inflation trade is silver?

Maybe. Maybe not. This second chart adds a few more names - companies that deal in other metals: Freeport McMoran (FCX, copper), Rio Tinto (RTP, aluminum, copper, gold), Mechel (MTL, iron ore, coal, steel), and AK Steel (AKS, steel). They are all outpacing the Treasury yields.