Target Zones for Buying Silver

Jeff Clark looks at the big moves in silver in the current bull market, and what those moves might suggest about a “safe” price range to re-enter the market. That said, given yesterday’s market action, it would appear that the correction has already ended. In which case Jeff’s article is best viewed (and saved) as a reference for the future downdrafts that are inevitable as the secular bull market in precious metals continues.

by Jeff Clark, BIG GOLD

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 forms of silver are we buying? Our portfolio names the best precious metal ETFs and some of the most reliable bullion dealers in the industry, along with the two top-performing silver stocks of the year. Get their names, along with John Hathaway’s caution about silver, with a risk-free trial to BIG GOLD. Check it out here.