Silver Price Low or High? When to Invest in Silver?

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(June 2012)

We all know that successful investing starts with “buy low, sell high.” But, what price is low and what price is high? Was gold “high” at $800 in 1980? Was the Dow “high” at 14,000 in 2007? Was silver “low” at $4.10 in 2001?

An indicator or oscillator is designed to answer the question, “Is the price high or low, relatively speaking, at this time?” Of course, no indicator is perfect, and all have times when they are more useful, but consider the following graph of silver prices overlaid against the so-called “Confidence/Risk” (C/R) index.

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Please note the comments below and then look at the extremes of the C/R index when it was below -40 or above +40. Those extreme low points were good buy points for silver bullion, and the extreme high points were good places to sell or at least place protective stops.

  • Left axis is the price of silver in cents since 2005.
  • Right axis is the C/R Index, normalized to approximately +/- 100.
  • Bands are located at +/- 40, which are indications of “overbought” and “oversold” regions.
  • When the C/R index gets above +40, it is time to be cautious, understanding that the long-term trend is still higher.
  • When the C/R index gets below – 40, it is time to prepare for purchases, depending on a short-term buy signal.
  • This is a weekly graph and is good for long-term buying and selling decisions, but it is not responsive enough to provide daily buy and sell decisions.
  • Note the black arrows indicating the lows in silver in 2005, 2006, 2007, 2008, 2010, and late 2011. In retrospect, all of these were excellent buy points as seen by the substantial rallies thereafter. I believe that in a year we will be able to look back and see that May 2012 was an equally strong buy point for silver.
  • As you can see, the price of silver is quite volatile. Prices rush higher for a few months, crash in weeks, and then languish for many months. But, on average, the price is going higher and should continue, I believe, much higher in the coming two to four years.
  • Silver bottomed in November of 2001 at $4.01. The current price is just under $30.00 (June 2012) and quite oversold. That move from November 2001 to present day represents a compounded annual rate of return of approximately 20%. By comparison, the DOW has made essentially no progress in that time.
  • The silver (and gold) rally with a flat DOW for the past decade is the opposite of the two decades from 1980 – 2000 when the DOW rallied by more than a factor of 10 and gold and silver lost much of their value. The economic times change and consequently the appropriate investments change.
  • The critical factors are WHAT and WHEN!

Click on image to enlarge.

GE Christenson
aka Deviant Investor

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