The Trouble With Silver

On Tuesday some silver stocks swooned like Southern Belles at Scarlett O'Hara's wedding. The problem was that Bolivia nationalized its natural gas industry, and the fear was that this would spread to other Socialist-leaning countries in South America.

Red-Hot Canadian Small-Cap subscribers, don't worry. Our stocks operate in Mexico, and if anything, its market is going to open up more, not close up. I've avoided Canadian miners that own property in Bolivia and Peru, for example, for just that reason.

But THEN silver took it on the chin today (Wednesday). Gold did too, both triggered by a rally in the US dollar, so my friends in New York and Chicago say, along with the all-purpose "profit taking."

But gold recovered. Silver did not. And a chart of silver looks ... well ... weak.

Looking at the chart, we can see that momentum (as indicated by RSI) is not keeping up with price action. Indeed, it may be leading it lower.

Remember how I said last week that the debut of the silver ETF could be followed by a short-term correction? We may see that.

Now, a couple of points...

1) Silver could laugh off Wednesday's action and vault higher on Thursday. Nobody I know is stupid enough to short silver at this point. Leave that to the hedge funds.

2) Even if the metal goes lower, and silver miners go with it, this is just setting up a great buying opportunity.

Heck, the Barclays iShares silver ETF (SLV) is already exceeding expectations. 21 million ounces of demand flooded in during the first trading day, and through Tuesday, that increased to 32 million ounces.

Its silver stash will likely reach and possibly exceed 100 million troy ounces within the first month, according to UBS. That's way up from the previous estimate of 60 million ounces.

You can find a news story on it here http://tinyurl.com/eqjno

And let's say the worst happens. Bolivia, Chile and Peru either confiscate mines outright or keep raising taxes. That means there's less silver production from those countries, and the silver produced by the mines in our portfolio is worth MORE.

Now for the really interesting thing. Silver has blazed the trail north for much of the year, and gold went along for the ride. Now, I think gold is getting back in the drivers' seat. Which stocks do you want to own under those circumstances?

Check out my new gold and energy blog at MoneyAndMarkets.com