On Wednesday, as silver and the silver ETF moved into our expected retracement zone (see Here), investors bought 18.4 million ounces of the silver ETF. For context, the silver ETF had only added 20.8 million ounces - in the twelve months prior to Wednesday. And although one could certainly argue that a bull market is built and maintained on the backs of healthy investment demand - for a continuation of an already matured trend, one would have expected that investors appetites for silver to be significantly eroded after a nearly two year downtrend. From my perspective, their commitments and entrenched dogma has run commensurate with a misplaced causation that primarily revolves around the notion that more "printing" by the worlds largest central banks - translates into higher precious metals and commodity prices.
Over the last two years, I have arguably been one of the most accurate forecasters of silver, the dollar and the CRB index - by maintaining one fundamental belief:
- The US dollar index bottomed in May 2011 - regardless of QE
Downstream, this has translated into a sloughing environment for the precious metals complex, the euro and the CRB index. Notwithstanding of the previous secular low comparative, the chart published Friday (seen below) strongly impressions me to believe that the euro has been strengthening in a rare window of diminishing correlations to long-term relationships - such as the dollar and silver.
Considering this dynamic in the past has typically marked exhaustion for the euro, I believe the strong inverse correlation to the dollar and strong positive correlation with silver will be reestablished in the not so distant future.
To date, silver continues to follow the price, momentum and retracement path of the 1991 (now 1992) Nikkei comparative.Should the comparative continue to be prescient, silver will soon pivot lower after fulfilling the 50.0% retracment level last week.