Will Silver Regain $15.00 An Ounce Soon?

August 17, 2009 | By | Reply More

Silver hit $15.07 an ounce last week while at the same time the gold/silver ratio dropped below 65. At the time this looked like good news for a bullish run for the metal up to $16.

Even most technical analysts were of the opinion that there were strong indications that the upward momentum would continue although with some reservations that there might be some resistance encountered in the $15 – $15.50 range.

As usual the technicians covered their backs that there might be some profit taking before the weekends´ close and that volumes were thin and that might tend to cloud the issue. As followers of the market will now know, silver took a big hit by the close of trade in New York on Friday and that is continuing in Asian and European morning trading with the price down to $14 .25 an ounce.

The price movements in silver are much more exaggerated than those of gold and it was interesting to note that on one trading day last week silver gained while gold went down, breaking for the first time for a very long time the tendency to follow gold’s lead.

By last weeks close and early Monday trading the pattern has been resumed so did this temporary uncoupling from gold throw out any signals that we should take note of?

Our first reaction was that all the talk of green shoots had encouraged silver followers in the expectation that the demand for silver would inevitably grow as industries increased production as economies, starting with Germany and France threw off the shackles of recession. Today we read that Japan has recovered but silver shows no sign of breaking ranks with gold so that theory can be discarded for now.

Despite the cloudy and ambiguous signs surrounding the short-term prospects for silver, the demand for silver in industry will recover as the recession wanes and it will retain, along with gold, its appeal as a hedge against inflation and store of value. The extensive and growing use of silver in industry and technological innovation gives it an important edge over gold, which has relatively little use outside jewelry.

By keeping a sharp eye on the gold/silver ratio coupled with a view on the longer term prospects for gold, there should open up some profitable trading opportunities in the metal via our favoured, easy to trade ETF, Ishares Silver Trust (SLV).

  • If the ratio approaches 68 or more, that may herald a buying opportunity for silver if you are a longer-term bull of gold, if your opinion is that gold is overpriced then sell silver.
  • If the ratio is in the low sixties the opposite comes into play.

Just keep in mind that in nearly every case, whether the price of both metals is rising or falling, the percentage movement of silver is almost always greater than gold’s.

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