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The title is catchy. It was meant to be. Right now, everyone is clamoring for silver. And why not? The metal has returned a stratospheric 700% since 2002. With leverage, you would’ve been a millionaire many time..

10 Aug 2011

By Deepak Rangan
The title is catchy. It was meant to be. Right now, everyone is clamoring for silver. And why not? The metal has returned a stratospheric 700% since 2002. With leverage, you would’ve been a millionaire many times over!

But the silver crash of May 2011 stung many investors worldwide. The metal has since then been moving without a direction; as if to settle on a support level and continue it’s much prophesized bull run to the $100 mark.

But if one were to look over the silver charts for the past 7-8 years, a pattern emerges. And all it promises is an approximate 1.5 year lull for the metal, with silver breaking the April high of 49.78 only by Oct-Dec 2012.

Below is the current silver chart. Notice the bull rally and the subsequent crash.

Now, look below at a similar bull run in 2005-2006

And below another bull run in 2003-2004

Eerily similar are the bull runs and the subsequent crash, isn’t it?

And here’s what I find interesting:

-In Oct 03-Mar 04 bull run, silver climbed around 75% and fell 35% after which the high was broken only after 1.9 years

-In Aug 05-May 06, silver climber around 125% and fell 37% after which the high was broken only after 1.6 years

-In Aug 10-Apr 11, silver climbed around 175% and fell 33% after which …….. we have been waiting for a bull run….. for the past 3 months.

So, if silver follows the last 2 patterns, one can expect silver to break the April high of 49.78 by Oct-Dec 2012.

An even worse situation occurred in 07-08. (chart below)

 

-In Aug 07-March 08, silver climbed around 83% and fell 60% even below the beginning of the bull run. And it took 2.6 years to break the high of 21.34

So, what is an investor to do? Should he invest now so as not to “miss the start of the rally” and risk waiting 1.5- 2 years for silver to break $50. Or invest the money in other instruments and wait for the $50 break and cash then? Because if one chooses the second option, the investor can get in on the trend even if the analysis is wrong and silver breaks $50 in 2-3 months from now. And as such, he need not risk a situation where one has to wait for 1.5-2 years.

The choice obviously is yours. What I have done is just present my case.

(The author is a Content Editor at Commodity Online and may be contacted at deepak@commodityonline.com)


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COMMENTS (1)
Garrett
17 Sep 2012
My thought is to invest now, and sell when silver hits 42 an ounce, then re-invest after the next crash.... The thing is that over a long period of time, silver holds its value, while the value of the dollar changes. In the 1800's, silver was 'worth' much less, say around $2 an ounce. That $2 would buy you a product that you could really be proud of. Today, with inflation rates, the dollar will not buy you as much. That same ounce of silver will buy you the exact same thing, but the item will cost $30 or more. On average, silver will hold a steady value and buy you the same thing it did when it was worth less years ago, but the same does not hold true with the dollar because of economics and other factors. In the long term, you are never 'losing' money when silver drops. The economy is just taking a slight change for the better, strengthening the dollar. That is the only thing that I want to add.
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