Last week I answered your question “What caused the recent sell off in gold”? This week, after I make a few comments, I will answer the same questions re Silver. By the way, want to cause a stir? Write about the weakness with Apple, gold or silver. Black helicopters start to fly and conspiracy theories multiply quicker than rabbits. All kidding aside, the only thing I trust (fact wise) about gold and silver is the price. After that, how can one prove if any of the stories are truth or fiction and other than wasting countless hours discussing them, does it really matter? Enough said.
Like gold, silver had quite a drop. There were two simple reasons for the selloff - more selling than buying and more supply than demand. Your next questions, “Using your charting system was there anything signaling a sell off for silver?” In addition, “what would signal it is time to get back in”?
I will answer these questions using the spot price of silver going back to 2008, using a monthly chart, a money flow Indicator, a momentum oscillator plus, our ever faithful, trend lines (slotted lines). An official buy signal is generated when: 1. the two signal lines cross up with the momentum oscillator (top box). 2. The price crosses up over the blue signal line. 3. Price crosses up over the trend line (blue slotted line). 4. Money flow must be increasing. When all four are confirmed an official system buy signal is generated. This happened in March of 2010 around the $17.50 price.
The spot price of silver ran for over two years until April of 2012…A system sell signal was generated when: 1. Price dropped down through the trend line (green slotted line). 2. Momentum signal lines crossed to the downside (top box). 3. Price dropped through my blue signal line and closed there after the second month. 4. Money flow began its descent (lower box). When all four were confirmed an official system sell signal was generated. This happened in April of 2012 around the $32.00 price. A run from $17.50 to $32.00 would have generated a $14.50 or an 82% return. One again, past performance does not dictate future returns.
What can we learn from this analysis? It is close to impossible to pick a bottom or top but if we take the time to learn which signals gave previous (profitable) buy and sell signals we will have a much higher probability for (profitable) buying and selling decisions in the future. Like always, no system is 100%.
If you want to learn more about Precious Metals…Gold vs. Silver…Paper vs. Physical…watch for an upcoming announcement concerning my Financial Friday Lecture series starting in June.
Plan your work, work your plan and learn to share your harvest!
DAVID O. ENGLAND is an associate professor of finance at John A. Logan College and founder of the Eye on the Market-Training Academy. For questions and upcoming seminar info, he can be reached at thetraderseye@gmail.com. The information above is for educational purposes only and is not intended to be financial advice. Your decisions to buy, sell, short, or hold any stock or investment product is a direct result of your own decision, free will, and research.
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