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.