If you look at the technicals on silver they do at first glance look a little "frothy," to borrow a term from Mr. Greenspan. The value of silver has more than doubled in just the past 18 months.
In the short-term, however, any break above $30 an ounce would be a new high after a correction of 14%, and from a technical perspective this would be very bullish. This would suggest that silver is headed to $40/oz. and higher, given the strength of the previous move up.
There is talk of a bubble in precious metals. Isn't there always? There is also some discussion on this site and elsewhere of silver pushing up against its highs of the past two decades in terms of its price in relation to gold (currently around 1/45th of an ounce of gold, i.e. a gold-silver price ratio of 45 to 1).
I would suggest that, rather than "froth" indicating the top of a bubble, we are currently at an inflection point in the silver market, which reflects a fundamental change in investor psychology.
A return to the historic relative value of gold and silver of 15 to 1 would put silver at $91 an ounce (with gold currently around $1,365 per ounce.) That means there is tremendous upside in the silver market should investor psychology truly be changing, as it appears to be.
As the Federal government continues to run multi-trillion dollar deficits, and as the Federal Reserve continues to provide the bulk of these needed funds by creating ones and zeros in the Department of the Treasury's bank account ex nihilo, investors are increasingly becoming interested in gold and silver.
Stock market bulls don't want to admit it, but equities are once again becoming extraordinarily overvalued based on historical averages. Another leg up in this bull market and we will be at 1929 levels. It's just a little bit scary.
