Silver to Break Through $20 per Ounce

By: Miles_Banner

Gold has stolen the limelight thanks to its bull run which started in the early 2000s. However, our attentions turn to another metal this week, as investors sentiment towards silver is gathering pace, and now is a make or break moment for the versatile metal.

The World Silver Survey released last week by the silver institute, expects the 2008 London high of $20.92 per ounce to be broken in 2010.

GFMS Chairman Philip Klapwijk forecast that the silver price could brake through $20 per ounce and outshine the gold price this year. “Silver’s demand is a function of the economy, not of the price,” said Mr. Klapwijk. “Industrial demand has come back quite strongly this year from a low level. I would imagine we could continue to see this year very strong investment demand.”

Silver was on a bull run of its own up until February 2008. Rising up to $19 an ounce. This rally came to an abrupt halt and investors were burned if they didn’t pull out in time. The correction pulled silver down to $9 an ounce, not traded at since 2006.

Since then silver has been on something of a rally. Surging back up to over $19.50 per ounce in May.

Signs of a silver price surge
Analysing the graph below, which shows a 10 year period for silver, an inverse head and shoulders appears between Jan 2008 to Jan 2010.

An inverted head and shoulders typically notifies investors to go long, with a view that the immediate future is looking promising.

[Note: for a simple explanation of what an inverted head and shoulders is click here]

To grasp what is likely to happen to silver, another metal, platinum, can shed some light. As you can see the graph below shows platinum in 2009 and highlighted is an inverted head and shoulders. From the second peak (right shoulder) the price of platinum rises to just under $1300 per ounce, very close to its head and shoulders target.

Silver investors will be hoping for a similar rally for their metal.

The rally may not materialise, however. The neckline is at a very slight negative angle. With a descending neckline, the likelihood of a breakout is less so. So investors should be cautious.

The silver forecast

The target is the estimated increase in the price according to the inverted head and shoulders. It’s equal to the vertical drop from the neckline to the lowest trough, and is forecast above the neckline as a breakout. For silver, the distance is approximately $10, so using the head and shoulders analysis, we can come to the assumption that silver could increase $10 up to $29 per ounce.

With increasing demand, the World Silver Survey results and our head and shoulders analysis, silver could be in for a prosperous 2010. Our main concern is the descending neckline, which is likely to have investors treading carefully.

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Gold Price Today

We leave you this week with a fascinating article forwarded to us by one of our readers, James. It’s a Bloomberg story that reveals the insatiable appetite for gold amongst central banks – Central Bank Gold Holdings Expand at Fastest Pace Since 1964

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