SILVER – Opportunity to buy or still too high?
Silver has been hovering around USD 13.3 and 13 for the last few weeks. It was higher a few months ago and could return there (and higher) but before that, it was much lower and could return there as well. When it comes to Silver many people have started regarding Silver as a safe-haven investment (much like Gold). This is partly true in that the profile of Silver has risen in terms of investors but the truth of the matter is that this a temporary phenomenon because it is widely used in industry. When Silver increases in price, you have to consider why this is happening… is China demanding so much Silver that we can justify the considerably higher prices? Perhaps, but how high are we going to allow Silver to go under this consideration when Silver can be replaced (in industrial use) by other metals or reclaimed Silver when it becomes too expensive?
At this stage, I think that if I were holding Silver I would think of selling when it goes higher that 16 or 17 (depending on how low I bought). I would not but a new position at anything above 13.5. In terms of short-term speculation, I like to use leveraged certificates to make the investment more attractive and to make profit in falling prices possible. When we are talking about buying at 13.5 and selling at 16, we have to consider that this is about 18.5% appreciation and when you consider the spread involved on both purchase and sale and the fees on top of that, the profit we can hope to gain is about 15%. This is a very good return for trading short term but when you think that you know the risk that the price could fall considerably and accept this risk, why not choose to purchase a two times (X2) leveraged product that would make your profit margin 30%? One of the companies that offers products like this is ABN Amro. I had used one of their short certificates on Silver just before the correction in February and made about 42% in 2 weeks. My rationale was simple, based on technical analysis (on its most basic level) I saw that the price was reached the high 16s twice before and failed to make it far past that level and was lucky enough to pick almost the top and sold when it went to 13.8 (you can’t always pick the tops and bottoms). You have to set yourself realistic targets of stop loss and profit taking and stick to them as much as possible, there are exceptions to the rule in that if you are good enough to reach you target easily and wish to take a bit more of a profit. Although, in such an event, it is advisable to take a part of your profits at your original target, that way if it turns against you, you have played it safe.
The above is a relatively risky strategy and would not suggest it if you are unsure of what you are doing. You have to understand the risk and accept it on your terms.
At this stage, I think that if I were holding Silver I would think of selling when it goes higher that 16 or 17 (depending on how low I bought). I would not but a new position at anything above 13.5. In terms of short-term speculation, I like to use leveraged certificates to make the investment more attractive and to make profit in falling prices possible. When we are talking about buying at 13.5 and selling at 16, we have to consider that this is about 18.5% appreciation and when you consider the spread involved on both purchase and sale and the fees on top of that, the profit we can hope to gain is about 15%. This is a very good return for trading short term but when you think that you know the risk that the price could fall considerably and accept this risk, why not choose to purchase a two times (X2) leveraged product that would make your profit margin 30%? One of the companies that offers products like this is ABN Amro. I had used one of their short certificates on Silver just before the correction in February and made about 42% in 2 weeks. My rationale was simple, based on technical analysis (on its most basic level) I saw that the price was reached the high 16s twice before and failed to make it far past that level and was lucky enough to pick almost the top and sold when it went to 13.8 (you can’t always pick the tops and bottoms). You have to set yourself realistic targets of stop loss and profit taking and stick to them as much as possible, there are exceptions to the rule in that if you are good enough to reach you target easily and wish to take a bit more of a profit. Although, in such an event, it is advisable to take a part of your profits at your original target, that way if it turns against you, you have played it safe.
The above is a relatively risky strategy and would not suggest it if you are unsure of what you are doing. You have to understand the risk and accept it on your terms.
posted by Private Banker at 6/18/2007 08:14:00 am
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