Posts Tagged ‘SLV’
Smart Investing Daily – Is It Time to Buy Silver?
Friday, 06 May 2011
Unless you have been hiding under a rock, you probably know that silver has had a major correction over the past week. The precious metal plummeted about 30% from a high of almost $50 an ounce to less than $35 yesterday. This six-day drop is one of the largest since 1983.
Silver has given back just about all of its gains for the past month and some traders are thinking it might be time to get long. But before you run and buy silver, there are a couple things to consider.
Forces That Move Silver
The U.S. Dollar
There are many theories on why this sell-off is happening. Obviously, any real strength or even support in the U.S. dollar will generally be bearish for precious metals like gold and silver. This is mostly because the U.S. holds the largest stockpiles of these metals and they are traded in U.S. dollars globally. Even though gold is more of a recognized currency, they both have sensitivity to changes in the U.S. dollar’s value.
The falling U.S. dollar has recently leveled out. That means we’ve seen a small correction in dollar-denominated commodities and metals overall. Earlier this week, the European and London central banks held their rates steady. The ECB also hinted that they may not raise their rates next month either. This is good news for the U.S. dollar.
The U.S. dollar traded higher late in the day yesterday and sent other dollar-sensitive commodities like oil and even stocks much lower on the day. Oil had its largest percentage drop in three years. If you don’t believe that the dollar is in control here, think again…
For now, it seems that the U.S. dollar will continue to be relatively weak. The rally seems more like a short-term bump rather than a long-term trend. Current Federal Reserve policy puts general downward pressure on the U.S. dollar.
Gold/Silver Ratio
Then there is the historical ratio between gold and silver. A good “average” ratio of gold to silver is about 55, according to many experts. That means 1 oz. of gold should buy 55 oz. of silver. The gold premium is because there is much more silver on this Earth than gold. Even though silver has industrial uses beyond gold, there is a global desire, respect and currency reserve with gold that silver just does not have.
If that ratio gets extremely high, like 100, that means that silver is cheap relative to gold and may Read more
Gold & Silver Go Parabolic … Almost
Let’s flash back to May 2006, when gold prices were behaving in a similar fashion as today. The yellow precious metal saw almost a 40% rally over the course of a couple weeks.
The SPDR Gold Trust (NYSE: GLD) – an ETF that trades at about one-tenth the price of gold and actually holds gold in a trust – saw its share price surge from $52 to almost $72 in a matter of two months. Many called this a “parabolic move” at the time.
A parabolic move essentially means that the price of a security (or a commodity) makes a sharp, fast rise, usually out of a basing pattern and thus becomes overextended, usually within shorter durations (two weeks or less). Often, when a security makes a parabolic move, the amount that it rallies is beyond its “typical” behavior.
September 2010
If you look at the weekly chart below of GLD, on the bottom you will see a current weekly ATR, or average true range, of about $2.90. This basically means that the average TOTAL movement of GLD in any given week’s time is about $2.90 (at least it has been for the past 14 weeks).
Over the past eight weeks, GLD has moved from about $112 – $128, which is about 14%. If you divide eight weeks by this dollar change of $16, that’s about 50 cents per week. That move is certainly not abnormal, so the stock has really not made any extraordinary moves in term of volatility….
From Smart Investing Daily
If You Like Gold’s Rally, Silver May Not Be Far Behind
Wednesday, August 18, 2010
Last week I wrote about how gold may not only be a great investment for the short term (it’s up another $20 since my article) but also has excellent prospects for the long term because of its beauty, versatility, industrial use and inflation hedge. Silver has many of these properties as well and at a much lower price, but before you get all excited about gold and silver, there are some things you need to know about these two precious metals and how they are related.