Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Correction Review - 26th Jan 20
The Wuhan Wipeout – Could It Happen? - 26th Jan 20
JOHNSON & JOHNSON (JNJ) Big Pharama AI Mega-trend Investing 2020 - 25th Jan 20
Experts See Opportunity in Ratios of Gold to Silver and Platinum - 25th Jan 20
Gold/Silver Ratio, SPX, Yield Curve and a Story to Tell - 25th Jan 20
Germany Starts War on Gold  - 25th Jan 20
Gold Mining Stocks Valuations - 25th Jan 20
Three Upside and One Downside Risk for Gold - 25th Jan 20
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Silver, Time to Buy

Commodities / Gold and Silver 2011 May 13, 2011 - 02:43 AM GMT

By: Puru_Saxena

Commodities

Best Financial Markets Analysis ArticleOnly two weeks ago, the price of silver was rapidly appreciating in a parabolic advance.  Back then, sentiment towards the white metal was extremely bullish and its price was approximately 78% above its 200-day moving average.  Furthermore, on the 25th of April, silver registered a key reversal whereby its price tested the all-time high recorded in 1980 but failed to hold on to its intra-day gains. 


You will recall that after observing all of the above conditions, we sent out an alert advising investors and speculators to take some money off the table.  As it turns out, our caution was warranted and what has recently transpired can only be described as a rout in the silver market. 

It is notable that although we were looking for a big medium-term correction in silver, even we were taken aback by the force of the decline. It is astounding that within two weeks, the price of silver fell by approximately 35% and today, the white metal is trading at just US$34 per ounce.  It goes without saying that the recent price action in silver is yet another reminder that commodities are extremely volatile and parabolic moves always end in tears.

Now, we are aware that many manipulation theories are currently doing the rounds whereby the affected parties are claiming that silver’s plunge was due to an orchestrated takedown by the banks.  Obviously, there is no way to prove this but it pays to remember that when any asset appreciates by 190% in 8 months, most of the buyers have already bought into the bullish thesis.  Therefore, after the buying has exhausted itself, profit taking and short-selling bring about the reversal and the price retraces a large portion of the gains.  This is how the world’s financial markets have operated since the beginning of time and ‘this time is different’ are the four most expensive words in an investor’s dictionary. 

Turning to the present situation, the price of silver is currently trading around US$34 per ounce.  Moreover, it is noteworthy that on two occasions, the price of the white metal briefly dipped below US$34 per ounce, however on both days, it closed above that level.  This price action leads us to believe that silver is finding some support in the US$32-34 per ounce area and it is conceivable that most of the selling is now behind us.

In terms of the technicals, silver is currently trading only 17% above its 200-day moving average and its daily chart reveals a double bottom formation. Moreover, investor sentiment towards the white metal has changed dramatically and euphoria has been wrung out of the market.  Thus, bearing in mind the possibility of a base formation and the negative investor sentiment, this is the time to start accumulating positions in silver.

Look. We do not possess a crystal ball and have no divine powers to accurately predict the future. However, we believe that the risk/reward for silver is now favourable and barring a deflationary meltdown, the downside is limited.

Our analysis suggests that under the worst case scenario, the price of silver could decline to US$30 per ounce but even that level is less than 15% below the current price.  So, this is the time to re-allocate capital to the silver market but investors should bear in mind the possibility that silver will not climb to a record high anytime soon. Instead, the probability favours a lengthy base formation which will then act as a launch pad for silver’s next rally.

Finally, it is our contention that during the next rally in precious metals, silver will not be the leader.  After all, the recent plunge has devastated investor sentiment and it is unlikely that the party goers will show up at the same ball again.

If our assessment is correct, the precious metals sector will experience a rotation, whereby investors and speculators will now turn to gold.  Accordingly, we believe that during the next big advance, the yellow metal will provide leadership and appreciate more than silver.

Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets.  In addition to the monthly report, subscribers also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com

Puru Saxena

Website – www.purusaxena.com

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients.  He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.

Copyright © 2005-2011 Puru Saxena Limited.  All rights reserved.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Matty in Florida
13 May 11, 17:11
Devil's Advocacy

I fully agree with your conclusion - so I don't get the "Devil's Advocacy" of your lead-in, which I find not only cliché, but demonstrably false. I disagree "what has recently transpired can only be described as a rout" - given your own quote of "appreciat(ion by)190% in 8 months", to a recent peak of (let's say) $49/oz: that would back out your original price (8 months ago) to $16.90/oz. Those who bought at that price - even if they sold nothing, and continue to hold at $34/oz - remain in solid possession of a 101% gain!

And likewise, to lesser extents, for everyone (like me) who got in anytime before the very last few months. Any of these folks for whom your "parabolic moves always end in tears" are simply weeping in the pure vanity, and greed, of "woulda, coulda, shoulda" - and would do better to work on their own vice, before castigating their trading strategy, which remains sound.

And this, with respect, is precisely what IS proving ‘this time is different’: consolidate from here and then rise some more? Deal me in!

Cheers,

-Matty in Florida


para suxena
15 May 11, 11:06
Manipulation Theory?

Anybody who says that deliberate increase of margin five times a week (last time that drastic action was taken in 1980 to brake Hunt brothers, otherwise silver would stay 40 then) is just a theory probably can not be named an analyst. These analyst also somehow miss 300% decrease in dollar value in just 2 months in 2008 - tripled base money supply. And they continue to measure the real things with the paper ruler that is just 30% of the previous one. Somehow they do not see real bubble and call all that just a theory of manipulation.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules