Silver has put in a real price push in the last few months having run from a low of $12.45 on the 13th July to a current best high of $17.66. Now the talk is of $25 or higher silver and $1500 gold. Buyers are coming out in force afraid to miss out on a big move and are piling into bullion, stocks and ETFs. Meanwhile the smart money is ready to take their profits and move on. Not because silver must be suppressed at all costs but rather because profits are the lifeblood of any business be it the sole trader riding the short term moves or the investment bank whose share price depends on consistently profitable buying and selling.
The chart below helps sum up the situation. It is the price of silver divided by its 200 day moving average (or RMA for short).
The chart goes back the entire length of this 6 year bull and the price of silver is superimposed in red. Note the horizontal line I have drawn at 1.300. I have also drawn vertical lines where the RMA crosses the 1.300 threshold. What is our conclusion? When the line is crossed, you do not open your wallet and empty it into gold and silver. Rather you lighten your postions and wait for the next great buying opportunity.
Note the previous crossovers. On the 10th March 2004 the line was crossed and silver peaked 3 weeks later. On the 28th March 2006 it crossed again and silver peaked one month and two weeks later. After this things got tighter as the threshold was crossed on 8th February 2008 and silver peaked 4 weeks later. Finally, it crossed the last time on the 1st June 2009 and silver topped a day or two later.
This Wednesday it crossed 1.30 again but only just at 1.31. The alarm bell has begun to ring but 1.31 is not a decisive enough break for me and needs monitoring. Will silver continue to rise for over a month like it did in 2006 or will it fizzle out like June 2009 after only days?
I don't know but rest assured this is not a time to buy in bulk unless you are disciplined with your stops and do not allow them to be unactionable at any time. Am I saying the silver bull is now dead and buried? Not at all! Was the bull over after the previous examples? Prepare for greater heights but don't get carried away at these critical junctures.
Further analysis of silver can be had by going to our silver blog at http://silveranalyst.blogspot.com where readers can obtain a free issue of The Silver Analyst and learn about subscription details. Comments and questions are also invited via email to email@example.com.