Last Friday (12th April 2013), silver price broke $26 support level for the first time. Silver price is now at the lowest for the past 2 years.
Why did this happen?
- Federal Reserve is considering ending QE by year-end.
- Goldman Sachs (American multinational investment banking firm) put a sell recommendation for gold.
- Cyprus selling gold worth of 400 million Euros (equivalent to £341m).
I believe the question that matter to you most is, is now a good time to buy?
First of all, it is never a good idea to catch a falling knife. Catch a falling knife means when silver price is dropping, you buy when you think the price is low enough. If your assumption is correct, great! You manage to buy some cheap silver. You managed to buy at the bottom. Once the market bounce back up few days later, you already made paper gain without selling your silver. However, if unfortunately your assumption is incorrect, you suffer paper lost immediately because price keep falling. When price falls, it usually drops at much greater speed.
A better recommendation to deal with this price fall will be determining the support level and then only start buying when the price bounce back up. This will ensure silver price will not continue falling after you made your purchase. You might not buy at the rock bottom price but you surely will not get caught in a situation where the price continue go lower after your purchase.
The bad news is, this sophisticated technique requires you to have technical analysis skill to determine where the support line is at. A common method to find the support level is using Fibonacci Retracement. This method is not for everyone. Not only it requires the skills but also time and commitment to monitor the price movement. However, if you are interested to find out more, you can consider using this simple Fibonacci Retracement Calculator created by one of the members in Malaysia Silver Investor Membership to the help the rest of the members to calculate Fibonacci Retracement easily and quickly. It was only intended to be used within the membership site. Now, with this member’s permission, I share this simple Excel calculator with you. You can download it here.
Dollar Cost Average is a more practical alternative to take advantage of the current price dip. This strategy is simple to understand and to follow. It does not require you to have specialized knowledge nor extensive time to stay closely to the market. For most people, it is a great strategy to practice. Even the experts Mike Maloney, David Morgan, etc highly recommend and using the technique themselves:
How Dollar Cost Average strategy works is simply allocating a fixed amount of money to invest regardless the price of the asset. In silver investment context, you can consider purchasing / investing fixed amount of silver every month regardless of the price fluctuation. For a start you might want to begin accumulating 1 oz every month. Later when you are more confident with silver investment, you might want to increase it to 2 oz, 5 oz, 10 oz or even 50 oz a month. It all depends on your financial appetite but the keyword here is consistently every month, for at least 12 months.
Here is a quick trick about Dollar Cost Average. If current silver price is significantly lower than your average price, you can consider ad-hoc purchase more silver (again, the quantity is depending on your financial appetite). For example, if your cost-average price is RM110/oz for the last 10 oz. During the recent price dip, price has gone down to RM100/oz. If you ad-hoc purchase another 5 oz of silver, your cost-average price will be also go down to RM106.67/oz. The calculation is as following:
RM106.67/oz = (RM110 x 10 + RM100 x 5) / 15
In Malaysia, there is a monthly accumulation program that is suitable for Malaysians who have no time to follow price fluctuation closely. When you join the program, the company will invoice you every month to buy investment grade physical silver for you and deliver to you (or you can collect it yourself). You can find out more details here:
My Silver Accumulator – A silver monthly accumulation program.
My Gold Accumulator – A gold monthly accumulation program.
Remember, every investment moves in cycle. If there are down trend, there will be uptrend. Price will NOT stay low forever. The fundamental of silver investment is to buy low, sell high. But in order to sell high, you first need to buy low.
To find out more about silver investment, take a look at eBook: Practical Guide For Investing Silver In Malaysia. You will learn the finest tricks for investing silver in Malaysia.