The above are crops from a 2 year Silver charts which show the formation that Silver has seen at the peak of each of the last two spikes and appears might be forming at the peak of this one.
As pointed out in a previous blog entry, Silver has risen by a similar percentage to both of the last two spikes:
$7.84 - December 28th, 2005 -> $16.68 - April 18th, 2006 -> 113% Rise
$11.04 - August 16th, 2007 -> $21.35 - March 17th, 2008 -> 93% Rise
$14.62 - February 5th, 2010 -> $29.33 - November 9th, 2010 -> 100% Rise
Not only are the spikes a similar percentage move to the last, but they are reasonably evenly spaced (every 2 years) and each of the peaks is approximately $7 higher than the last (approx $14, $21, $28) if measuring by the highest close (rather than intraday peaks).
In my opinion a break below the $25 mark would signal that the formation is complete and provide a downside target of $16.43 to $22 as I previously discussed. Even though I mention a $16.43 target I can't see the price falling back under the $19.50 to $21.50 level. This price area has provided a lot of resistance over the last 2.5 years and I could see it turning into a significant support area should the Silver price retrace.
Of course there is no guarantee the price of Silver will retrace or follow the same formations as in the previous spikes. There are other fundamental factors which might continue to drive the price higher.
American Silver Eagle 1oz Silver coin sales are going through the roof. In 2006 approximately 10m coins were sold, 20m in 2008, already in 2010 we have 32m sold with another month yet to go. We've seen a record month in November 2010 for ASE 1oz sales, surpassing the previous high set in 1986.
Another factor at play is that Chinese citizens are (legally) allowed to buy and own physical Gold & Silver, this was not possible in either of the 2 previous spikes.
Further to this we have an upcoming decision from the CFTC on metals positions limits which may have some bearing on the maximum positions the US Investment Banks can hold and also we have several lawsuits that have been lodged against JP Morgan & HSBC for manipulating the Silver price...
It will be interesting to see if the fundamentals or technicals win this battle.
Whether you are buying, selling or holding Silver at the moment will likely depend on your strategy. Personally I am holding, but have not bought any significant amounts while spot has been above $20.
Disclosure: Position held in Silver. Not investment advice. Do your own research.