Time to buy silver?

In less than four weeks silver prices have tumbled along with many other markets, including gold. From the recent highs of $19 per ounce, the metal is trading at $12.17 per ounce at the time of writing. So the question now is whether it’s the time to buy silver once again? And to answer this question we need to consider the volume associated with the recent sharp sell-off, and one volume bar in particular which stands out and associated with the initial wide spread down candle when the metal broke away from the volume point of control (as denoted with the yellow dashed line). This is our ‘benchmark’ candle and volume bar against which future volume and price action can be judged.

It is this candle/volume combination which in many ways answers our question, as all the subsequent volume associated with the move lower has been less, whilst the price action has been dramatic. In other words, if our benchmark sets the standard for what to expect in terms of a price move on the day, and volume, the dramatic candle of four days ago should have seen volume twice, or three times that of our benchmark.

This was not the case, and indeed the volume was in fact lower than the previous day. In addition, this dramatic candle also included a deep wick to the lower body signalling some initial buying at this level. In addition, the volatility indicator was also triggered, suggesting we are likely to see congestion or a reversal in due course. So several reasons to think we will see a reversal in silver in the medium term from the base now building in the $11.70 per ounce area.

By Anna Coulling

Charts from NinjaTrader and indicators from Quantum Trading