-- Posted 3 February, 2010 | Share this article | Discuss This Article - Comments: 2 Source: SilverSeek.com

From a seasonal standpoint a case can be made that Gold and Silver usually make a price high this time of the year.  Of course with the global situation many feel that the metals will continue higher and the risk is missing the boat ride by jumping out too soon.   There is certainly a lot of data that can be construed as inflationary.   The question when using fundamentals is always timing.  The fundamentals usually do play out at some point.  The paradox is of course that if the markets behaved with the fundamentals from a timing perspective then economists would be traders.

The price of silver was one of the big winners last year and the sentiment out there is for much higher price in the future.  And that may certainly be the case.  With all of the information out there it is difficult to not have a market opinion…………….and in other cases or perspective, it is difficult to HAVE AN OPINION.  

We all have our cherished views and bullish fervor on certain investments and the lure of $100 and $200 dollar silver must rank up there with the best of them.  After all silver bulls have been saying for 30 years that we are running out of silver and the time has finally come for silver and gold to have their day. 

My interest in the precious metals is of the same fodder.  I am in the camp that eventually gold and silver will have their place in the monetary and industrial world. 

The majority of the data we see is usually short and sometimes medium term time frames.   The selloff we saw in silver from 19.50 down to 16 dollars has a lot of investors asking and pondering the question of whether silver should be purchased here or not.  Surely if silver was going to triple digit prices that now would be a great time to buy it.   So I decided it was time to take a longer time frame look at the price of silver to see if it offers any clues as to direction.  What I found was most surprising.

The chart below is a chart of the most popular silver ETF called (SLV).  It is from around the April 2006 time frame and represents close to 4 years of data on the silver price.  (The ETF trades a bit lower in price than spot but does a great job of following it).  What was most striking is that if you look all the way over to the left of the chart in late May 2006 we see that the price of silver was just below 16 dollars at its peak.  Fast forward over to last week and ………………………………we see the same price, 16 dollars.   We see the high of 2006 at 16 dollars, the high of 2007 at 16 dollars, the crash break price of 2008 was 16 dollars where silver plunged from, the June price peak of 2009 was 16 dollars and finally, the SUPPORT LOWS OF 2010 is the 16 dollar area.  Observe all the red arrows on the chart and you will probably agree with me that the 16 dollar area for silver is the most important price area of the last five years.  There is no other price in the last four years that has served as a better turning point.  During the last 4 years silver has only been above the 16 dollar area twice - Once in 2008 for 6 months, and now this year, for almost 6 months. 

Therefore it is my conclusion that the turning point that must be watched is the 16 dollar area in silver.