Silver: Technicals of a correction.

Regular readers would know that I was going to sell some silver on Monday but it was a public holiday. With the steep decline in silver's price the following day, I had no inclination to sell more silver. Why? Well, the market is unpredictable and there is nothing to say that the correction could not be another shallow one.

I had divested my investment in silver partially on two occasions and, in the process, I  recovered about 80% of my capital. If I had been able to divest partially again last Monday, I would have recovered all my capital and more. At the moment, although I am still sitting on a nice paper gain, I could see the gain shrinking quite significantly but, again, there is not certainty in this.

Looking at the daily chart, price has formed two very long and bearish candlesticks in the last two sessions. Closing at US$41.51/oz in the last session, the short term 20dMA has been breached. The 50dMA is at US$38.67/oz. The MACD has completed a bearish crossover while the RSI has gone below 50% which often acts as a support in the momentum oscillator. Momentum has turned bearish but the MACD is still in positive territory and the downward movement in price is most probably just a correction and a much needed one at that.

In an earlier blog post, I said that the weekly chart shows silver's price going parabolic and that this is ultimately unsustainable. If we look at the weekly chart again, we see the 20wMA at US$34.95/oz. This was the same weekly MA that was tested earlier this year in January and it held up. The 20wMA would be a safer entry for anyone who would like to reduce the risk premium of investing in the precious metal.

So, is silver still a good longer term investment? Well, fundamentally, the case for silver (and gold) has been well argued. Technically, looking at the weekly chart, it is interesting to see that it is not as bearish as the daily chart. Shorter term daily gyrations of silver's price could provide good opportunities to go long on the metal for any investor with a longer term perspective.

UOB is selling silver at S$51.68 /oz today.