Peak

September 17, 2010

Theories
Abigail F. Doolittle Research
abigail@peaktheories.com
518-391-9313 LLC
www.peaktheories.com

Current Commentary on the Primary Financial Market Trend

The Weekly Peak

Is Silver the Next Gold?
With gold hitting a historic high this past Tuesday only to have it taken out yesterday, I thought it might be timely to take a look at another
precious metal on the move: silver.

Specifically, do the charts and the basic fundamentals support the sense that silver is set to continue its recent run as well? And perhaps more
tantalizing, is there any evidence that points to the idea that silver can take out its more than thirty-year-old record high of roughly $50 per
ounce?

Based on a scrubbing of the charts and the fundamentals, I am more inclined than not to believe that silver’s future may look like gold.

The Charts
The two-year chart of silver is very strong with an even uptrend and several successful tests of support.
.

The three-year chart of silver shows that the precious metal has recovered from the routing it received mainly in the second quarter of 2008.

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While silver’s long-term chart (not shown) is one of the more bizarre that I’ve seen with the precious metal’s record high made back in 1980
hanging over it since that time ($50 per ounce to a low of around $4 per ounce), I don’t think it means silver will be unable to rise above that
shadow and perhaps the case can be made that the peak puts a precedent in the chart for silver to shoot for and overtake.

Overall, the charts of silver look good and support a continued rise, but what about taking out that record price? In my view, the charts fail to
provide that answer and so we must turn to the fundamentals.

The Fundamentals
In reading up on silver, it seems as though there are at least six good reasons to think it is set to continue to rise.

1. Benefits from a Continued Bull Market in Precious Metals – The 10-year charts of both gold and silver (not shown) slope up and to the
right and demonstrate that there has been a bull market in precious metals as demand has overpowered supply for at least the last
decade. This fact was cemented yesterday with gold closing at an all-time high of $1,275.20 per ounce and silver at its year-to-date high of
$20.80 per ounce. Until there is clear evidence of a reversal of this major uptrend in precious metals, it is more likely than not to remain in
effect, taking silver with it.

2. Renewed Jewelry and Silverware Demand – These are the two biggest end-use sectors for silver and both were hit by the global recession
of 2008 and into 2009. According to some analysts, there is some evidence, however, of growing demand for silver jewelry and silverware
and especially out of China and India.

3. Rebirth of Silver Industrial Demand – Silver’s next biggest end-use sectors are electrical and electronics which were also hit by the
recession while the greater use of digital photography also dented industrial demand for silver. Similar to jewelry and silverware,
however, there is evidence that demand is coming back from the industrial-side. In addition, silver is likely to find use in a variety of new
industrial applications due to its ability to conduct electricity, its unique anti-microbial properties that offer protection against infection
and disease, and its reflectivity. According to some experts, there seems the possibility that we will hear more and more about silver’s use
in solar energy, medical applications, antibacterial textiles, radio frequency identification devices, batteries, water purification, and
culinary hygiene.

4. Rising Investment Demand due to ETFs – Until the advent of silver exchange-traded funds in 2006, investors had to purchase silver from a
bullion desk or jeweler or trade in the futures market. Now, however, these physical metal-backed ETFs offer investors a liquid way to
invest in silver as a safe haven hedge against other riskier assets.

5. Economic Fears Fan Renewed Bullion Interest – As the “poor man’s gold” silver offers some protection against potential inflation as a
physical and transferrable store of value that should retain intrinsic value. However, there’s been as much talk about deflation, or a
general decline in prices, and while this would likely cut into the value of silver to some extent, on a relative basis, similar to gold, silver
would likely shine as a hedge against the fear and uncertainty likely to accompany such a scenario. In addition, even without clear
inflation or deflation, there’s plenty of fear and uncertainty about the future to go around and silver, especially physical silver, offers a
protective investment in such times.

6. Offers Purchasing Power Against Paper Currencies – Similar to the point above, demand for bullion coins such as Canadian Maple Leafs
and American Eagles may increase as investors become increasingly uneasy about the longevity of paper currencies that are chained to
unsustainable sovereign debt loads.

Summed up, silver does truly seem like the “dual-purpose” precious metal. Put more eloquently by Jeffrey Christian of CPM Group, “Silver is
really attractive because you have strong investment demand and strong fabrication demand. You buy gold when you think the world is going
to hell in a handbasket. You buy copper when the economy is booming. In between those two, if you’re a bit confused, you buy silver.”

Sounds like the perfect precious metal for the present moment.

Will Silver Break Its $50 Peak?

I certainly don’t know the answer to that question and I don’t think the charts combined with the fundamentals provide it clearly either.

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financial markets and the economy. Please see important disclosure statements at the end of this document.
 Peak
September 17, 2010
Theories
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Jeffrey Nichols of American Precious Metals Advisors, however, likely does have the experience to weigh in on the issue as a recognized expert
on the economics of precious metals markets.

In a recent article in a numismatic journal, he wrote:

Based on silver’s own improving supply/demand fundamentals, I expect higher silver prices in the months and years ahead.
Consistent with my forecast of $2,000 gold in the next few years, I expect silver to hit and surpass its 1980 all-time peak around $50
an ounce.

And so, it seems those in the know on the subject think it is possible that silver will take out its record-high and this could very well make silver
the next gold.

Sam’s Stash, Gold, and the S&P

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After five months of exceptional strength in Treasurys with the 10-year having gone to 2.477% on August 30 from 3.994% on April 5 , these
government securities have backed off a bit as risk has rallied over the last nearly three weeks.

I believe this more recent trend will continue if investors continue to take on more risk as a collective decision that the possible double dip
recession is unlikely to take hold of the economy. If this occurs with the S&P 500 continuing its almost three-week long rally, I believe this will
translate to Treasurys continuing to weaken with the 10-year moving back above a 3% yield if not above 3.5% in the near- to possibly mid-
term. There is even a possibility, supported by the mid-term daily chart (not shown) that the 10-year yield could move above 4%. For this to
happen, however, the risk rally would have to be long and deep.

Even if that latter possibility does occur and we see the 10-year yield back above 3.5% or even 4.0%, such weakness is likely to be cut into by
the sovereign and banking woes to come out of the euro-zone at some point in at least the next 3 to 12 months.

When the next leg of the financial crisis does take shape and hold of the euro-zone with possible sovereign debt defaults and/or banks that go
under as result of being undercapitalized, I think we will see Treasurys rally virtually overnight and this will have the effect of bringing the 10-
year yield back to where it is today and much lower yet.

Interestingly, the mid- and long-term charts also support that move and it fits the continuing sovereign-debt story that is likely to come out of
Europe eventually. In fact, I continue to believe that the 10-year will go below 2% when this flight to safety occurs and the risk rally is over.

Long-term, of course, I continue to believe that Treasurys will weaken horribly if not collapse all together due to the unsustainable debt burden
of the United States and I will be writing on this topic in a more in-depth manner at some point soon.

How the exact timing of these three distinct phases shall play out, I don’t know, and frankly, just five weeks ago, I would never have guessed
that we would see the weakening that we’ve been seeing for almost a month now due to the risk rally because that rally wasn’t apparent yet.

This sort of uncertainty is also true around the dollar because it was not so long ago that I thought the dollar was headed higher and perhaps
significantly so but it, too, has fallen victim to the risk rally and to a number of other factors.

Last week’s piece provides a more in-depth look at what I think may befall the dollar index in the coming weeks and months but for today I will
simply sum it up by saying that I am now inclined to believe the dollar index will decline in the near-term if risk continues to rally.

There’s strong support at 80, as shown in the chart on the following page, and if it doesn’t break 79.507, I think the dollar index is likely to hang
out there, supported, until safe haven investment classes are once again sought after.

If it does break that level, I believe it will fall to between 72 and 75 where there is support with the stronger level found around 72.

I won’t discuss how I think the latter possibility and beyond might play out, however, unless it seems that the dollar index is going to break that
79.507 level.

Peak Theories Research LLC is an on-line research firm dedicated to providing investors with a macro long-term view on the
financial markets and the economy. Please see important disclosure statements at the end of this document.
 Peak
September 17, 2010
Theories
The Weekly Peak Research
LLC
www.peaktheories.com

Relative to gold, what a week it’s been. The spike up is impressive, to say the least, and the overall trend is clearly up.

So long as this past week’s rise is followed by further gains or level and supportive trading, it would seem that gold may continue its climb
higher and toward the price target of the aforementioned Mr. Nichols.

And now, for a brief look at the S&P 500.

I believe that we may be at a rather peculiar time for the index as there are two technical indicators that are close to confirming together that
the index could take out this year’s closing high of 1,217.

First, there is the still unconfirmed and bullish Inverse Head and Shoulders pattern that I have been writing about. It confirms precisely at 1,131
while a more conservative line of confirmation is 1,135 or even a tad higher. Thus far the pattern has played out fairly well as a rather ragged
Head and Shoulders bottom and the only thing it’s lacking prior to confirmation is strong volume on the index’s move up out and out of the
right shoulder as most technicians say there should be with the exception of one technician who claims that this pattern performs better with
declining volume as the pattern progresses. This pattern is shown in any of the last roughly 20 pieces I have posted if you would like to see it.

If, and it remains an “if” until it happens despite the proximity of levels, if the Inverse Head and Shoulders confirms, it carries a target of 1,250.

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financial markets and the economy. Please see important disclosure statements at the end of this document.
 Peak
September 17, 2010
Theories
The Weekly Peak Research
LLC
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The other indicator is something called the Fan Principle and it makes use of three trendlines that can be drawn from a single point of Reversal.

rd
In this case, that point is April 23 while the breakout above the third Fan Line came last week. This move is significant because this use of
trendlines is used around Intermediate Reversals, and thus the breakout may signal the resumption of the uptrend that began on March 10,
2009 and the idea that the S&P 500 will move through the last high close of that uptrend.

It is for all of these reasons that these two technical indicators taken together point to the idea that the S&P 500 may move above 1,217 and
higher yet.

Should this occur, at this time, I believe the duration and depth of the rally will depend on how long Europe can hold off on blowing up. The
moment the euro-zone starts to flare up in significant ways, I think that any possible rally in the S&P 500 will reverse and quickly as there are
very few who will want to hold investment risk in the specter of such fundamental risk.

And, of course, the long-term chart of the S&P 500 tells us this, it tells us that the index will decline significantly at some point, even if after
another rally or what could come to be called a bull market by many, for its primary trend is very much down.

Put otherwise, regardless of what the S&P 500 does in the near- to mid-term, move back down or continue to march up, the index’s long-term
trend remains down and it will swallow all other trends in due time.

As always, thank you for taking the time to read this week’s piece.

Peak Theories Research LLC is an on-line research firm dedicated to providing investors with a macro long-term view on the
financial markets and the economy. Please see important disclosure statements at the end of this document.
 Peak
September 17, 2010
Theories
The Weekly Peak Research
LLC
www.peaktheories.com

DISCLAIMER
Opinions expressed herein are strictly that of the author and are subject to change without notice and may differ or be
contrary to the opinions or recommendations of any professional associations held by the author including the author’s
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Peak Theories Research LLC is an on-line research firm dedicated to providing investors with a macro long-term view on the
financial markets and the economy. Please see important disclosure statements at the end of this document.