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Why Silver? Here's Why

11/23/10 08:25:01 AM
by Koos van der Merwe

Why silver?

Security:   SLV
Position:   Sell

To me, silver has always been the secondary investment to gold, more so when the world's monetary mints stopped making silver coins. I look at young girls wearing silver jewelry, and wonder when they grow up, will they still wear silver, or will they wear gold?

Today, gold is a currency play. The US, with its Bernanke strategy, wants a weak dollar, so manufactured goods become more competitive on world markets. With China's yuan fixed to the US dollar, and a political system where decisions are made instantly without unnecessary and lengthy debate, as we will now see in the US Congress, China has no option but to become a world economic powerhouse. The US has no option but to devalue the dollar, and try to become competitive.

However, with the price of gold soaring to new heights almost every day, the poor man who cannot afford to buy gold shares or exchange traded funds (ETFs) has to turn to silver. That is the answer. So would you buy silver today? As long as you believe that the US dollar will weaken further and gold rise to new heights, the answer is, "Of course you would."

However, what do the charts say? To answer this question, I am looking at the iShares Silver Trust.

Graphic provided by: AdvancedGET.
Figure 1 is a weekly chart, and the Elliott wave count looks like a complicated one. Following and trading the silver ETF is not easy. But we knew that, didn't we? Silver is the poor man's gold.

The chart does suggest that silver could be due for a correction, as shown by the relative strength index (RSI), which is at overbought levels. To answer this question in more detail, we must look at Figure 2, a daily chart.

Graphic provided by: AdvancedGET.
Figure 2 suggests that silver should correct in a Wave 4 correction to somewhere between 22.54 and 24.05, the fourth wave of lesser degree. The Elliott wave count is a great deal simpler than the weekly chart, suggesting that it could indeed be accurate.

To conclude, both the weekly and daily charts of silver shows that a correction down is on the cards. With silver the poor man's gold, this must mean that the gold price is also on the way down. Suggesting that the US dollar will strengthen, suggesting...

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
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Date: 12/01/10Rank: Comment: Koos, I don t agree with you short term. Let s see what happends. Hope all is well. Dick Slayton

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