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Forget Gold, Silver Gives More for Your Buck: Chartist

Gold hits the headlines but the real action is in its sister metal and one time king of the currency world. Silver gives traders leveraged access to gold. In simple terms, it's cheaper to buy contracts, you get more bang for your buck, and the returns on capital are greater. This is an alchemist's opportunity to turn silver into real gold.

Silver has several characteristics which help to understand the potential for future price behavior. The first characteristic is the fast rise in August and September this year. This was a rapid uptrend breakout moving from $28 per ounce to $35. This gives a 25 percent return. For the same time, gold gives a 10 percent return. Silver moves more rapidly, and the profit is larger.

The second characteristic is the resistance level near $35. This has been a strong support and resistance level. It was a support level in May and July 2011. It was a resistance level in November 2011 and February 2012. A successful breakout above $35 has an upside target near $43. A move above $43 has the next upside target near $50.

The third characteristic is the clearly defined trend changes. The trend are easily defined using a trend line. The fast uptrend was defined by trend line A. The downtrend defined by trend line B. The current uptrend is defined by trend line C. A move above or below the trend line gives a reliable signal of a change in the trend. This allows traders to establish reliable entry points and to set effective stop loss points. The trend behavior is more clear than gold.

The clear trend behavior is also supported by the relationships in the Guppy Multiple Moving Average indicator. The relationships between the short-term and the long term GMMA give a clear entry and exit signal. In the current situation the long term group of averages have compressed and turned up. They have also begun to separate. This shows increasing investor support for silver. When prices fall this wide separation shows that investors move into the market as buyers and support the rising trend.

The stability and reliability of the trend behavior in silver gives two trading strategies. The first strategy is a buy signal when the silver price falls to the value of the trend line C currently near $33.50. The stop loss is placed near to the trend line so the risk in the trade is reduced. The objective in this first strategy is to hold resistance level near $35. The first upside target is near $43 and this trade returns around 22 percent.

The second strategy for silver is the buy when sliver moves near to the resistance level at $35. This strategy buys in anticipation of a breakout above the resistance level and a test of the first upside target near $43. This trade returns around 42 percent.

Silver has some of the characteristics of the gold trend behavior, but the silver trend is clearer and the profit is larger.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com. He is a regular guest on CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. We welcome all questions, comments and requests.

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  • Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.

Asia Economy