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?