Are you ready for $40 silver?..

Folks,
With little fanfare attached, Copper closed at an all time weekly high last week and has subsequently notched up both record intra-day and daily highs within the last few trading sessions. Not only that, but it has sustained over the last 4 trading days a close above the pivotal $4 level. It therefore looks increasingly likely to me that copper is setting itself up to embark on a new and exciting uptrend.

Given that the period of consolidation capped at these present levels has been an especially lengthy one, I would expect a confirmed breakout from here to vault the price quickly to the 500-600 level within a few months and it is not unreasonable to expect copper to be staring at $800 by the middle of next year!

The implications of this I have discussed in previous correspondence and expect to be wide ranging. However for today I want to look at what such a growing possibility will mean in the context of my favourite speculation, alas that shining steed, ‘Hi Ho’.

Below is a chart highlighting the performance of copper over the last 10 years and underneath it that of silver.

As the graph clearly shows, every great run up in copper over the last 10 years has proved almost equally positive to silver.

To note especially, on the 2 occasions when copper broke out from lengthy periods of consolidation (mid 03 and mid 05), it’s price vaulted by no less than circa 100% within a 6-8 month time frame. On each occasion silver sustained moves of a similar magnitude, almost mirroring it’s orange cousin!

Another point of major significance that is clearly depicted in the graph, is that any positive movement in the price of copper is almost always positive for the price of silver. In other words, it is very difficult, given the historic correlation between the 2 metals, to envisage a scenario where copper could rise in price and silver fall!

Taking all of this into account, I come back to my original comments and my growing expectation that we are about to see copper embark on a new uptrend, an uptrend that might very well see $600-800 within the first few months of 2011. Under such a scenario, there is every reason to expect silver to move higher in tandem, which would set it up for $40+ within the next 6 months.

That will come as a major surprise to a large majority of even the most bullish of precious metal fans who are likely already considering taking much of their recent profits off the table in the expectation of a major correction dead ahead. But that’s the point of the markets isn’t it, to surprise the majority, leaving only the minority to benefit from the trend.

The bull wants to run with as few on his back as possible, My guess is a move higher from here within the next 3-6 months will do exactly that.
Best,
Rich (live from ‘The Scarborough Bullion Desk’)