When To Buy Silver ?
February 3, 2012 1 Comment
If you are like me, the contents of the table here http://wealthymatters.com/2012/02/01/heart-stopping-silver-price-movements/ should be unsettling.But at the same time it shows how much money could be made in silver in relatively shorter periods and in a pretty passive way too.So the key to making some money from silver is to know when to buy it and when to exit it safely.The article below from yesterday’s ET should help a bit in buying and selling silver profitably.I have highlighted the parts I felt would be useful.
Silver’s path rarely smooth; don’t forget the dark clouds
The confusion is not surprising. Some believe silver is headed up. Hedge funds and other money managers have more than doubled wagers on higher prices this year and the biggest bet is on silver touching $40 by June, up from $33 today. Others are more cautious. Both Morgan Stanley and Credit Suisse, for instance, have cut their price forecast for this year. The main reason for such divergence is that silver is a hybrid. It is a precious metal as well as an industrial one.
Those appraising silver as a precious metal are encouraged by the generally poor global economic prospects in 2012. The meltdown is not as dramatic as 2008 but the pain is more universal and expected to last longer as currencies lose value. World Bank has lowered the forecast for global economic growthto 2.5%, lowest in three years, because the crisis in Europe may slow down China and India.
With few alternate avenues for investment, like gold, silver too is enjoying demand as a hedge against inflation, currency fluctuations and general economic malaise. Investors may buy 2,000 tonnes through exchange-traded products, after selling 1,300 tonnes last year, according to one estimate.
But silver is not designed by nature to be simply locked up in vaults. It is also a hard-working industrial metal. About half of the total demand comes from factories in making everything from jewellery, electronics, solar panels, and batteries to high tech clothing and radio frequency tags. Slower Chinese growth will pull down silver’s industrial demand growth. So while silver’s value as a safe haven is rising due to a shaky world economy, the flip side is dull factory demand.
While demand may slow, supply will be ample. The world gets a lot of silver as by-product of lead, zinc, copper and gold mines. They continue to produce silver irrespective of its price signals. Consequently, physical demand and supply of silver are expected to remain well-balanced this year, dimming prospects of windfall gains.
The third factor to consider while investing in silver is its relationship with gold. The silver-gold price ratio is an important technical indicator of how much further silver can be tugged by bullishness in gold. A rising ratio means silver is outperforming gold while a falling one means silver is lagging gold. Right now silver may still be cheap relative to gold, with a price ratio of 51.5, down from 57.4 in December.
But silver’s path is rarely smooth. In gold, the rate of price increase is often hard to guess. Yet there is collective belief that gold will continue to become more valuable. What else is the point of it? In silver, not everyone is betting on higher prices. Physical users of silver gain most when it is cheap. This conflict keeps silver less one-directional.
Moreover, in terms of value, the physical silver market is much smaller than gold. So any big inflow of investment makes a loud splash and the market choppier.
Even the most conservative analysts say silver will not drop below $34/oz this year. The bulls are betting on silver touching $44, almost 40% more than today. Where does that leave you? Silver has had four parabolic ascents and subsequent near-crashes in 2004, 2006, 2008 and 2011.
Instead of getting swept away by market enthusiasm, it’s important to remember that whenever punters focus on one price factor, the other one comes back to bite. There is always a danger of correction if silver rises too far too fast, despite bullish fundamentals. Experts say the best time to buy silver is when it is low, near its 200-days daily moving average; while the best time to sell is when it is far above its 200dma. In short, stay safe.
Because silver is far more affordable than gold, it is easy to believe that the gains will be bigger. That can be a trap. You could put your faith in silver as a precious metal and hope for wild gains. Or you could see it as just another metal that sometimes even moves in tandem with copper. Both guarantee you plenty of company and edge-of-the-seat excitement. But do your homework first. Silver is a cruel teacher.