Saturday, 30 April 2011

Silver: Another reversal signal.

When I first talked about buying silver early last year, not many people were interested. That time, I was blogging about precious metals in my investment blog, ASSI, and silver was US$15 to US$20 an ounce.

Lately, there has been increased interest in silver and I mean really increased interest. That got me somewhat worried as a wise old man by the name of Warren Buffet said that we should be fearful when others are greedy and be greedy when others are fearful. This is also a reason why I am holding out against adding to my long position in silver at current prices. I keep saying that I would wait for a correction.

When anything experienced a steep run up, very often, it would have a steep plunge as well. It is a matter of time. When would that happen? That's a tough question, of course. Looking at the chart, a doji was formed in the last session. We could have an evening star set up (a 3 stick bearish reversal pattern) if the next session should open lower and close lower as well.

However, with the MACD forming a higher high, the momentum is just amazingly positive. This could go on for a while. I always look out for negative divergences on whether we could be seeing a reversal soon but price could crash and crash quickly without giving such warnings. Mr. Market is most unpredictable.

I have been looking at the daily charts of silver so far. Now, I want to look at the weekly chart and it is very revealing. See how the price action has gone parabolic? This cannot last for long. It is unsustainable. The 20wMA was last tested in January 2011. If we look back a bit more, it is obvious that the 50wMA is a stronger and more reliable support. Could price go that low? With strong bearish sentiments, why not?

Today, I read an article which reinforced my feelings that silver could experience a correction soon but exactly when, we do not know.

Eric Roseman says that the "current gold/silver price ratio of 30 to 1 is at an extreme" and this is a ratio I looked at before and it was a strong reason why I decided to buy silver instead of gold from early last year. At that time, however, the ratio was about 60 to 1, in fact probably more.

When does Eric Roseman think would be a good price to buy silver again? US$30 an ounce thereabouts. This would approximate the 50wMA for silver in the near future probably and is rather believable. He "thinks silver will be a good buy again, after falling to as low as US$30 an ounce in coming months. His ultimate target: around US$125 an ounce". Read the full article here.

Silver is being sold at S$59.58 an ounce in UOB today. I could soon sell some of my silver for the 3rd time since opening my Silver Savings Account early last year.

Tuesday, 26 April 2011

Silver: Getting ready to buy?

Just when I mentioned that I would not chase silver as its price almost touched US$50.00 an ounce, a forceful intra-session retreat has taken place and silver is currently at US$45.66 an ounce. That's a 10% retreat. Is the time to buy near? In fact, do we buy now?

The candlestick formed is akin to an inverted cross. Price pushed higher only to give back all its gains to close the session unchanged, almost. This tells of great selling pressure closer to US$50.00 an ounce and it is a formidable resistance. From here on, at least in the near future, bulls are likely to proceed with caution and I imagine that some could have been burnt as they chased silver higher.

Looking at the candlesticks, it is clear that US$42.00 is probably a nice enough support and this is followed by US$40.00 an ounce. After that, US$38.00 an ounce. With the 20dMA at about US$40.84 now, buying some at US$42.00 an ounce as a hedge could be a good idea. However, after such a steep run up in price, we could expect an equally steep correction and I would not be surprised if silver should go lower.

With the MACD set to form a higher high, momentum is strong and the chances of price being supported in the event of any retreat are quite high. Silver's uptrend is intact and it would make sense to buy as supports are tested.

Sunday, 17 April 2011

Silver at US$43.05 an ounce!

There is a lot of fear. There is fear in the USA that their money could become worthless, well, almost. There is fear in the EU that more countries could go asking for bailouts and people even wonder if the EU could come apart. There is fear even in China and India which has seen them increasingly buying more gold and silver. The Chinese government is encouraging even its citizens to buy more silver. So, it is no wonder that silver's price has been going up and up.

Silver is currently at US$43.05 an ounce. The bullishness in the silver market has found new momentum and we see the MACD going past the last high and it is set to form a new high. What does this mean? The negative divergence has been negated! That is extremely bullish as it means that despite higher prices, buying momentum has strengthened!

If we look at the technical chart, we would see that the spinning tops or potential reversal signals failed to be confirmed, time and again. The bulls are powering ahead. So, what does this mean for us who are waiting to buy in or to buy more? Rush in and get some silver now? We can certainly do that. However, I am somewhat apprehensive as the RSI has been in overbought territory since the start of this month. Of course, in extremely bullish circumstances, it could stay overbought for a long time.

However, I have learnt not to chase as price goes higher and will continue to wait for a pull back to supports. Apart from the moving averages at 20d, 50d and 100d, a nearer term support has formed at about US$40.00 /ounce. This is quite obvious if we look at the candlesticks. So, a small long position at US$40.00 for people who have yet to gain exposure to the precious metal? With the MACD on its way to a new high, yes, this could be a good move and it would also be buying at a price that is about 7% lower than the current price.

There is also some concern that the S$ has been strengthening against the US$ and that we might not see much in terms of gains in S$ terms. Well, it would depend on how much silver is going up in US$ terms compared to how much the S$ is going up against the US$. If silver's price is going up simply because the US$ is depreciating, then, its price is out of whack. It should be lower and not where it is now!

My research has shown that silver could go beyond US$80.00 an ounce in time. When exactly would that happen? I do not know. In S$ terms, the gain could be less but with a potential doubling of silver's price in US$ terms, the US$ would have to halve in value for us not to see any gains in S$ terms. If that were to happen, the world economy would have to be a basket case, well, to my mind anyway.

Friday, 8 April 2011

Have we missed the silver boat?

I have people asking me if they have missed the silver boat. Some wonder if they should jump on the boat now before it is too late. Well, I cannot and would not stop them from jumping on the boat now if they so wish to. Who knows? Silver could go higher in the next few weeks without weakening although I rather doubt it.

 On 18 March 2011, not too long ago, I actually said that "Technically, silver has tested the 20dMA which is now at US$34.22.  So, for anyone who would like to start a long position in silver and is afraid of missing the boat, initiating a position here could be a good idea. Buying at supports in an uptrend is conventional wisdom." Read blog post here.

For anyone who bought some then, they would be in the money now. Of course, there was no way I could guarantee that silver would go higher then. It could have weakened further to test the 50dMA or even the 100dMA which it did a few months ago. However, buying at supports in an uptrend is conventional wisdom.

What I have observed is that silver's corrections are getting shallower. This is normal in a very bullish scenario. However, this is not normal given a longer time frame. What am I trying to say? I think that a deeper correction is on the cards and it is just a matter of time. Always remember that prices do not go up or down a straight line. Prices climb a wall of worries and there will always be times of weakness. Again, in an uptrend, we want to buy at supports.

Silver is now trading above US$40 an ounce, a heady figure, and I believe that silver is going to US$50 an ounce probably sometime this year. Indeed, my earlier research suggested that US$80 an ounce is not far fetched. If you have not read my blog posts on the silver and gold ratios, here are the links:

1. Gold or silver?

2. Buy more silver on weakness.

Where are the supports now if we should buy at supports? This is where we look at the charts. Silver is currently at US$40.27 /oz:

Looking at the technicals, silver's price has formed two spinning tops as it pushed higher. The MACD, a momentum oscillator, is lower than in early March although price is higher now compared to that time. A negative divergence is an early warning on possible weakness. Price could continue to move higher but we can be sure that momentum is now weaker.

Where are the supports now? 20dMA is at US$36.89, 50dMA is at US$33.79 and 100dMA is at US$31.17. Good luck to us all.

Wednesday, 6 April 2011

Silver forms a new high.

Silver broke resistance at US$39 an ounce and is currently at US$39.38.

Looking at the technical chart, silver is pushing higher even as momentum formed a lower high. It suggests a higher level of risk to enter at this point in time. I remain sidelined and will wait for a pull back before adding to my long position.

UOB is selling silver at S$49.77 /oz today. My initial investment in silver slightly more than a year ago has more than doubled even in S$ terms. That is amazing and I am more wary than ever.

Monday, 4 April 2011

Silver broke US$38/oz resistance.

Silver is currently at US$38.43/oz. The resistance at US$38/oz has seemingly been overcome. Could it be a whipsaw? Only time will tell. For sure, I am not chasing.

UOB is selling silver at S$48.12/oz.

Sunday, 3 April 2011

Silver due for a correction?

I am just doing my usual Sunday morning reading of the latest news on the net and came across this:

"Speculators in gold and copper futures and options raised their net long positions in the week ended March 29, while they trimmed bullish bets in the silver market, according to the latest report by the U.S. Commodity Futures Trading Commission." Source: Reuters.

This could be a reason why silver's upward movement in price is stalling. When price keeps testing the same resistance level while the momentum oscillators weaken, it is usually a sign of distribution (smart money distributing to dumb money; yes, it sounds harsh but that's the way these guys talk). I am wary of negative divergences and although it could be some time before price falls, I am going to err on the side of caution. Not buying more at current levels.

Related post:
Silver's sideway movement.

Friday, 1 April 2011

Silver's sideway movement.

Silver has been trading sideways for a few sessions, trapped between US$37 and US$38 an ounce. It is currently at US$37.29 an ounce.

Looking at the technical chart, we see candlesticks in the form of hangmen and inverted hammers, not bullish signs. However, silver could be doing a correction using time, waiting for the 20dMA to catch up before moving higher. The 20dMA is currently at US$36.09.

Personally, with the candlesticks suggesting that market participants are indecisive and the MACD having formed a lower high, I would go with the possibility that silver could move lower in the near future. The 50dMA is at US$32.62 while the 100dMA is at US$30.58.

UOB is selling silver at S$47.70 an ounce.