Silver bugs anxiously waiting for a the next big move in silver could get one soon enough. Goldmoney’s Founder James Turk is out with his next call for the silver price. He believes silver could reach between $60 to $75, “easily,” but wouldn’t put a time period for that target range.
Turk does, however, expect a technical breakout of the silver price from its consolidation to take place sometime in November, which he expects will embolden the bulls to race prices through $50 and to all-time highs. After $50, the sky’s the limit for silver. Get my next ALERT 100% FREE
“Silver is forming a beautiful, long-term, flag consolidation pattern,” Turk told King World News, Monday. “The flagpole started in 2010 at $18 and peaked at $49 earlier this year. We are now in the flag and we can expect a breakout, I think, within the next few weeks.”
As one of several old hands of the bullion business, Turk understands what drives gold prices—therefore, silver prices. He takes publicly available Federal Reserve data to estimate the expected change in the Fed’s balance sheet and calculates to a ‘fair price’ for gold and silver. He calls his simple, yet elegant, model, “The Gold Money Index”.
As traders watch for any hint of a Fed announcement regarding more QE, the matter before the Fed appears to be fait accompli. As a reminder of the grotesque U.S. budget deficit, expected to reach at least $1.6 trillion for fiscal 2012, the U.S. Treasury issued a news release on Monday, announcing its funding needs for the quarters of Oct. – Dec. and Jan. – Mar., totaling $628 billion, or a 35 percent jump from the equivalent six-month period a year ago.
Here’s the widely-known problem with Treasury’s plan to fund additional deficits at this time:
Foreigners, who have propped up U.S. deficit spending for more than two decades through increasingly higher amounts, have been net sellers of Treasuries lately, not net buyers—and that 35% increase in additional funding needs comes at a time when foreigners are withdrawing from the dollar to debase their own currencies.
One question looms large. Will the Fed have to buy the entire $628 billion net issuance? If so, the Fed’s balance sheet will grow at a 47.9% rate from its approximately $2.9 trillion total.
A collision course with a big precious metals move is near, as auction results should show larger and larger take-downs of Treasuries from its primary dealer network. That should spook the markets.
The formation for silver’s recent consolidation indicates the market expects the Fed to mop up Treasury issuance in another QE operation. What else can it do? Talk of ‘inflation expectations’ and U.S. GDP is an obvious and tired smoke screen to the reality of Treasury’s funding needs.
“. . . it [silver price consolidation formation] projects to a $60 silver price, but given the strength of this pattern, one could easily see $75,” said Turk. “The shakeout over the past six months has put a lot of people on the sidelines. I don’t expect that money to come back into the market until silver goes back above $43. When silver takes out $43 it should rocket just like it did earlier this year when it nearly doubled in price.”
The graph, below, illustrates James Turk’s confidence of rapidly rising silver prices in the coming months, though the extent of the anticipated damage to the Fed’s balance sheet, which drives precious metals prices, is unclear.
It’s no secret that higher interest rates cannot be tolerated by the Fed. Near-zero rates at the short end of the curve until at least June 2013 is already entered into the record. That is clear. Therefore, if foreigners cannot be counted on (they don’t have the additional cash) to buy U.S. Treasuries, no one else but the Fed can buy them.
PIMCO’s Bill Gross asked the rhetorical question in one of his missives last summer, “Who will buy Treasuries if the Fed doesn’t?” A better question might be, “How much Treasuries will the Fed buy?”
Or . . . and may be classified as a tin-foil hat proposition: what if an outrageous event occurred somewhere in the world that would scare investors into Treasuries at any price? We could see Treasuries mopped up at lower yields and soaring precious metals prices simultaneously. Who knows? But traders of both gold and silver shouldn’t be disappointed in any event.