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Target Zones for Buying Silver

Commodities / Gold and Silver 2010 Nov 20, 2010 - 06:56 AM GMT

By: Jeff_Clark

Commodities

Best Financial Markets Analysis ArticleJeff Clark, Senior Editor, BIG GOLD writes: Yesterday, we looked at the major spikes and corrections in gold in order to determine where we might buy, so let's look at the same with silver today.

As you know, silver is more volatile than gold. That means two things. If you own it, expect the price to have bigger surges and larger downdrafts. And if you're buying it, you have greater opportunity to snag it at lower prices.


Let's first look at all the major spikes in silver since the current bull market started in 2001 (those greater than 10%). 

The far-right bar represents our most recent surge, and you can see that the 59.6% return logs as the second highest advance to date in this bull market. The average of all spikes in our current bull market is 31.2%, so our recent jump is almost twice the average. At a minimum, some consolidation was in order, and a bigger-than-normal correction should not surprise.

As with gold, though, I think the Big Spike is still ahead; silver soared an incredible 443% in 1979 and jumped 53.5% in just three weeks in January 1980.

How far does silver fall? The following chart displays all major corrections in silver in our current bull market (defined as a retracement of greater than 10%).

The average of all major corrections is 19.7%. Based on the London PM fix of $28.55 on November 9, silver would fall to $22.92 if it matched the average decline. As of Wednesday's close of $25.20, silver has fallen 11.7%, comparatively small.

If we remove the '08 meltdown, the average of all pullbacks is 17.7%. If we hit that average, the silver price would fall to $23.50.

Since silver logged its second biggest run-up, what if it matched its second biggest decline? If we again remove the '08 aberration, a 33.7% correction would take the price to $18.92. Only in a full-blown deflationary sell-off do I see silver losing a third of its value. And if it did, I'd be turning over couch cushions to find every spare nickel I could to buy it.

Remember, with silver's increased volatility, you can set stink bids (if you're buying an ETF) at lower percentage drops than where you might for gold. If you're buying physical metal, which is where we think your first dollars should go, then keep your dealer's phone number or website handy, as the price can move abruptly.

Based on this data, if the correction continues, a pullback between 17% and 19% wouldn't be too surprising. And that makes prices between $23.50 and $22.92 good target zones.

What’s a good price on gold, silver, and precious metals stocks? We’ve charted every summer pullback in prices since the bull market began in 2001, giving us target zones for every asset in our portfolio. Our Summer Buying Guide is an invaluable resource for identifying a good bargain in our industry. And you can access it right now, for $39 per year, with a risk-free 3-month trial. Click here for more.

© 2010 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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