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?