Sunday, November 28, 2010

Has Silver formed a double top?


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.


BB.

Disclosure: Position held in Silver. Not investment advice. Do your own research.

7 comments:

  1. Hey, I stumbled upon your blog. I am hosting one too. I believe that the fundamentals are going to win this battle and the difference this time is the demand for the product is too strong (further proven by what you say about the bullion increase in ASE).

    The three double tops definitely intrigued me, but if you have noticed... each double top is as you point out higher than the last... shows the overall trend... the biggest gains are usually found when technical analysis attempts to follow technical analysis but instead breaks loose in one direction or the other... I am guessing it is going to be going way up. Have you considered the gold to silver ratio? The way it's trending now is very intriguing...

    Silver/Gold are re-monetizing and fiat currencies (the Euro/US Dollar/..) are going to be heading to a weimer republic state (hopefully not as bad...)
    -
    Great blog, I will have to keep check it out.
    You can find my blog at:
    http://thehardrightedge.com
    -
    Cheers,
    Scott J

    ReplyDelete
  2. As you mention, each top is higher than the last. Even if we do see a pullback in the short term I am still expecting much higher prices in the medium term.

    The GSR has bottomed around the same level it did in both the 2006/2008 spikes, so is another indicator pointing to the short term top being in.

    All that said, as I mention in the blog there are strong fundamental factors at play that might make this time different. Shouldn't be long until we find out which way it goes.

    Cheers

    BB.

    ReplyDelete
  3. Hi BB, Looks head and shoulders to me, much more obvious on the gold chart. + USD on the rise could point to a significant correction for PM's on the way.

    Regards
    DYODD

    ReplyDelete
  4. Hi anonymous, personally I think the H&S on the Gold chart is a little too obvious.

    While I've pointed out that there is a potential double top forming on the Silver chart, it is actually my personal opinion that Silver's fundamentals will win this time around and that we will see higher prices by Christmas. If this did happen I think it would be an indication that we are at the business end of this bull market and a true parabolic move would not be far away.

    USD has seen an increase over the last month, but I think this rally is coming to an end and will soon fall back below 80 and will see below 70 be early next year as the metals continue to climb. Although I can't quantify this opinion with a chart.

    Cheers

    BB.

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  5. Hello BB,

    Waht is your take on trading the platinum to silvewr ratio. From looking at the charts it looks like trading silver to platinum is a safe bet since the PSR looks to be for the most part over 100.

    At the current ratio of 61 i cant help to think it may be wise to trade for 1 or 2 ounces of silver and see where oit goes from there

    ReplyDelete
  6. Sorry, meant to say trade for 1 or 2 oz of platinum

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  7. I can't say I really keep track of the metals that don't have history as units of money. While platinum/palladium have risen strongly with Gold and Silver I believe that G&S will end up breaking away and moving higher.

    I think the GSR is worth taking into consideration and think buying Gold more heavily than Silver at the current ratio would be the right longer term move.

    BB.

    ReplyDelete