Thursday, November 11, 2010

Is Silver's parabolic spike over?

My third ever post on this blog was entitled "Where to for the price of Silver?", it suggested that we were likely going to see Silver head into a parabolic spike. The price target was $28.20 to $31.15. The blog was posted on the 20th of September when we saw the Silver price close at $20.71. Almost 2 months later on November 9th we saw a Silver price of $29.33 (intraday), this was a 42% increase from September 20th and approximately a 100% increase from the low I suggested Silver was rising from (made on February 5th).

This gives us the following parabolic spikes:

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

$14.62 - February 5th, 2010 -> $29.33 - November 9th, 2010 ->
100% Rise

The price of Silver saw a big fall following the intraday high of $29.33. The fall was attributed to a change of margin requirement for Silver traders by the CME:
Commodity Exchanges Increase Margin Requirements as Prices Surge
Nov. 11 (Bloomberg) -- Commodity exchanges in the U.S. and Europe are increasing the cost of trading some raw materials in response to a jump in volatility as prices surge.

CME Group Inc., the largest futures market, increased margin requirements, or the amount of money traders must keep on deposit, for soybean futures by as much as 10 percent as prices jumped to a 26-month high. The CME’s Comex unit raised the requirement for trading silver to $6,500 a contract from $5,000 as the metal reached a 30-year high. ICE Futures U.S. increased margins for cotton as the commodity rose to a record and LCH.Clearnet is raising them for robusta coffee, cocoa and white sugar next week.
The question now remains: With the target price met is the spike over? Should we expect a fall and period of consolidation? I hinted in the September post that we might see a higher rise than previous spikes due to a longer period of consolidation and increased demand, will this be the case?

I encourage your comments on these unanswered questions!

This spike may not be over, but it would be prudent to take care if trading Silver on margin or if you are looking to buy a core position. In my opinion those accumulating Silver over time should continue to do so, but those looking to buy Silver for the first time should probably consider the sharp rise we've seen so far and whether they are happy to hold through a fall in price and consolidation (should the current spike be over).

It is my personal opinion that we will see higher Silver prices over coming months, however it is easy to get caught up in the 'hype' and I wonder how many other Silver investors thought Silver was going higher (short term) at the top of the spikes in 2006 and 2008...


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

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