Monday, September 20, 2010

Where to for the price of Silver? (USD)

With Silver on the move I have to wonder where the price is headed. Some analysts are looking at the recent wedge breakout and gauging price targets from this technical event, I have seen others try and make an inverse head and shoulder pattern out of the last 3 years. Personally I would take a more simple approach and measure where I think this parabolic spike will go based on the moves of the last two. Each of the last two parabolic spikes have been preceded by a larger than average drop in price. Here are some figures that I've pulled from IncredibleCharts (intraday highs and lows):

Parabolic Spike 1:
$9.23 - December 12th, 2005 -> $7.84 - December 28th,2005 -> 15% Fall
$7.84 - December 28th, 2005 -> $16.68 - April 18th, 2006 -> 113% Rise

Parabolic Spike 2:
$13.49 - July 24th, 2007 -> $11.04 - August 16th, 2007 -> 18% Fall
$11.04 - August 16th, 2007 -> $21.35 - March 17th, 2008 -> 93% Rise

Parabolic Spike 3?
$18.89 - January 11th, 2010 -> $14.62 - February 5th, 2010 -> 22% Fall

That leaves us back with the question in the blog title...where to for the price of Silver? A 93% rise from the January 11th low would take it to $28.20, a 113% rise would take it to $31.15. I would say this is a reasonable target for the price of Silver in this coming parabolic spike. Of course no one can know for sure, there are plenty of factors which haven't been considered in this price discovery method, for example demand for Silver has increased dramatically since each of the last parabolic spikes so this may have some bearing on the peak price, also we've had a longer period of consolidation.

One thing I think we can count on is that the price action will be volatile. Silver has had a stellar run from the $18 mark over the last month, even if we are ultimately heading to $30 over the coming months you can be sure there will be pullbacks on the way up so don't be surprised to see them.

The price of Silver in USD has been dragging up the Australian price (even with a rising AUD) and it's currently trading back above AUD$22. This bodes well for any stocks on the ASX which have Silver exposure. To my knowledge there are only 4 "pure" Silver stocks on the ASX, one of which (Coeur D'Alene Mines Corp, CXC) is delisting in December this year. This will leave 3 "pure" Silver stocks on the ASX. They are:

Cobar Consolidated Resources Limited (CCU)
Silver Mines Limited (SVL)
Alcyone Resources Limited (AYN)

I will cover these companies in a new blog soon.


Disclosure: Position held in SVL, CCU & Silver. Not investment advice. Do your own research.

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