Outlook for Silver & Gold

By: ispeculatornew
Date posted: 05.23.2011 (5:00 am) | Write a Comment  (0 Comments)

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A lot of investors are keeping a very close eye on precious metal futures and in particular silver is drawing a lot of attention. I did write about trading those commodities 10 days or so ago. In the last two weeks Silver has been beat up pretty badly; its price has dropped about 34% from its peak on April 28 to $49.56 an ounce to its low on May 12 at $32.30 an ounce.

Despite its drop, I actually still like the silver market. Looking at the chart we can see that the recent rise was extremely parabolic and as Newton would say: “whatever goes up must come down,” and the market is no different. If you managed to jump on silver futures in February then congratulations but the reality is, its rally was unsustainable.  When the excitement ran its course, sellers jumped into the market and drove the price down.

This drop in the market has provided a reset and I think it is only a matter of time before prices move higher again; however until I get the right signal I wouldn’t touch a contract with a 10 foot pole. These resets provide great opportunities for investors who missed the initial rally.

Let’s look at the recent price in gold as an example of how investors could have taken advantage of a price recent. In March 2008 gold broke above $1,000 an ounce for the first time ever. However by October, the price hit a low of 691.80. That represented a drop of about 30% in seven months.

However volume picked up and broke initial resistance at $800. During 2009 the price quickly regained all of its lost territory. Despite the drop, a lot of analysts remained extremely bullish on gold and it looks like their long-term outlook was right. Gold has managed to hold on to most of its recent gains and is trading around $1,400 an ounce.

Silver prices are extremely more volatile than gold but the trend remains the same.  I think it is only a matter of time before silver moves higher; however, in the short-term silver prices have only one way to go and that is down.

I am not the only one who is sitting on the sidelines waiting out this volatile storm. A lot of analysts have said they are just waiting for the right time to jump back into this market. The most important element investors should be looking at right now is the volume down at the bottom of the chart. Volume dictates the price trend and right now there are way more sellers than buyers in this marketplace.

There appears to be initial support at $32.00 an ounce but I don’t think it will prove to be very strong. I think we could see prices drop to at least $30.00 an ounce before this storm is over.

On the upside, there is strong resistance at $40.00 an ounce and if prices are going to break that level, volume will have to be extremely strong.

Commodity prices across the board are expected to move higher over the next few years. Whether this will be another speculative bubble is not really my concern. I am more interested in finding the right entry point and then getting out with some nice profits.

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