Silver: The long awaited correction.

The strong believe that silver will do better in 2011 is still very much alive. However, investors who were wary of loading up as price skyrocketed in the last few months had refrained from adding to long positions. In fact, some might have partially divested their investment in the metal to lock in some gains. I know I did.

Looking at a simple 1 year chart for silver, we see how it broke the support provided by the 14dMA and since that break, price had risen on 2 occasions only to meet with resistance at the same 14dMA. We have repeat confirmation that support has become resistance. So, each time price rose to the 14dMA, market participants would sell down the metal. The 20dMA itself has turned down and this would mean price forming lower highs if resistance could not be taken out.

On 9 Dec 10, I mentioned that "If we believe the strong uptrend could continue, we might want to buy in a small position when silver is nearer US$27.00 /oz.  That would also be about a 10% pull back from the high of US$30.70 /oz or a 5% pullback from current levels."

There seems to be some support at US$27.40. If this breaks decisively, we could see price sinking to the US$24.00 level in time. I am taking a wait and see approach here but for anyone thinking of getting some exposure to the precious metal, a small hedge at current levels could be considered. After all, one can never be totally sure.

To buy an ounce of silver from UOB for the Silver Savings Account would cost S$35.33 today.

Related post:
When to buy silver again?

UOB Silver Savings Account: Annual service charge.

I received my first tax invoice from UOB for the Silver Savings Account service charge and GST. A total of 2.14 ounces were deducted, including GST.

I took a photo of the invoice to share with any reader who might be interested:

Silver is retreating from a high. Let's see if it would retreat further to lower levels before I add to my long position.

"...no less than 1.696 million silver coins were sold by the U.S. Mint on the first 2011 trading day - suggesting that interest in silver bullion in particular remains at an extremely high level." Read full article here.

Line my palm with silver in 2011.

On 7 February 2010, I mentioned that my research showed that silver was very undervalued and was trading at the higher end of the Gold:Silver ratio since 1980. I initiated a long position in the precious metal which has turned out to be very rewarding.

In my last blog post on 9 December 2010, I said I would wait for a pullback to support before loading up on silver once more. Chasing as it forms new highs is not something I am comfortable with. Well, a pull back did occur but the rising 14d MA soon pushed the price up again. Silver is on a strong uptrend and US$29.00 an ounce is the immediate support for now.

Will this support hold and will the price continue to rise in 2011? I do not know if the support will hold but I believe that silver price is going to make new highs in 2011.

Using UOB's rates, an ounce of gold is S$1,827 while an ounce of silver is S$39.54 (31 Dec's rates). That gives us a ratio of 46.21. One ounce of gold could buy 46.21 ounces of silver. In February 2010, one ounce of gold could buy 69.45 ounces of silver! Silver has definitely outperformed gold in 2010. At its highest in history, an ounce of gold could only buy 14.9 ounces of silver! See blog post of ratios here: Gold or silver?

Believing that gold price could rise in 2011 and knowing that the gold to silver ratio is only at its historical mid point, buying more silver is the way to go. So, what do we do? For anyone who wants a long position in silver, initiating a smallish position at US$29.00 (S$37.70 at a rate of 1.3) an ounce could be a good idea. This is assuming that the 14d MA continues to push silver's price higher as it rises.

However, remembering that the 14d MA is a very short term MA and that I am investing with a longer time horizon in mind, I am not confident that silver's price could continue rising so strongly without significant breathers. So, for me, I would continue to wait for a more significant pullback to lower levels before adding to my long position.

Related post:
When to buy silver again?