Silver looks vulnerable to a short-term price fallPosted on 04 October 2010 with 9 comments from readers
After a stellar run up over the past six weeks the silver price is looking vulnerable to a correction. Silver is now more than $22 an ounce, up very sharply since the summer.
The article about silver investment in The Daily Telegraph today is a typical indicator of a short-term top. So too was ArabianMoney’s appearance commenting on silver prices on City 7 TV in Dubai last week.
National newspapers and TV usually only spot a trend after it has happened, and not before. They after all report news and leave the forecasting business to investment websites and newsletters.
Volatility equals opportunity
But if silver now suffers from one of its periodic flashes of volatility this is the best time to buy. That will be when newspapers perhaps report that silver has proven a fickle friend again for investors.
In late 2008 the silver price more than halved in the global financial crisis but has more than doubled since then. When it dipped was the time to buy.
The past has a habit of repeating itself, particularly the recent past. However, the fundamentals in the market also support the notion of silver being overbought in the short term. Some analysts see silver back at $13.50 within three weeks.
The stock market rally is looking long-in-the-tooth and at the classic over-optimistic stage before a sudden reversal. Once that happens, as in late 2008, the impact on precious metal prices will be to drag them down with it. Gold and silver will be sold to cover losses on stocks.
Buy the dip
Buy on the dip then and you should get a decent recovery, and then the real upside is to come as central banks print money and precious metals surge much higher.
Consider this chart from clivemaund.com which shows how the technical chart points to overbought silver: