Submitted by Francis Soyer
There are three things driving silver higher rite now. First is that the U.S. debt ceiling hike of 2.5 trillion will last the U.S. until December at which point congress will need to reconveen and hammer out another increase. So in essence what has occured this week is the U.S. balance sheet or debt to equity ratio has increased on the debt side by 17 percent e.g. diluted the value of the dollar by 17 percent give or take...And in December to get through 2012 the treasury will need to further dilute the value of the dollar by another 5 + trillion or 30% for a total decline in dollar value of roughly 52 percent. By December ish expect Dollar purchasing power to be cut in half especially for core inflation items such as Food and Energy.
Second is that given the above expect the U.S's credit rating to get cut thus making it harder for the U.S. to borrow and making treasuries no longer "Risk Free" as evidence of the CME's decision in margin requirement increases taking treasuries off the list of Risk Free assets.
Third is that Default for the U.S. and most of the European Union is also still a real and probable outcome. Where can investors shelter themselves from this type of environment? Many have fled to the Swiss Franc (which also is being considered to becoming backed by gold) or Gold and Silver itself. Unlike paper these metals can not be printed out of thin air are hard to mine and have a finite supply. Citi Group is looking for silver to be in the $100 range by year end. They are probably correct. In the interim on a six month basis our opportunities to acquire below VWAP prices (volume weighted average price) are over. Those who are a bit late to the game can still try and acquire on a 5 day basis such as in the chart below. The red line represents the VWAP price hence buyers should be looking to add at prices below $18.55.
Cheers
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