Dec 20, 2011
It’s a question we get a lot from people we know (and those we don’t for that matter):
“Is now a good time to buy silver bullion when holding New Zealand dollars?”
Better buying silver now than 8 months ago
Well, the first answer and one that doesn’t require a huge amount of insight is that it’s certainly a better time to buy silver bullion than 8 months ago. Back in late April of this year silver bullion in NZ dollars touched $62.50 per ounce. As I type it’s priced at $38.26 per ounce, so silver bullion is down over 38% since then!
Quite a tumble as you can see…
Silver bullion is volatile
The one thing you can guarantee with silver bullion is that it’s price is certainly volatile no matter what currency you look at it. As you can see in the chart above, this calendar year it has been as low as $35 NZD and as already mentioned, as high as $62.50. That’s quite a trading range.
How has silver performed in recent years?
Silver bullion in NZ dollar terms is actually down 4.5% on the $40.00 it was at the start of 2011. So why buy it if silver’s down over the past year?
Well check out a longer time scale and NZ dollar silver bullion is actually looking pretty good.
At the start of 2010 silver bullion in NZ dollars was priced at $23.00. So that’s a rise of 66% in the last 2 years (or 33% annualised). Back a year further and it was $18.50 NZ, so that’s a gain of 106% in the past 3 years (35% annualised). You can visualise the rise in the chart below…
So it would be fair to say that in the medium term silver bullion has been significantly better than money in the bank. You can see in the 3 year chart above, that the long term trend remains our friend. While volatile the trend is definitely heading in the right direction, that is rising to the right.
However, we prefer to look at silver (and gold) as a means of protecting wealth and purchasing power. As it’s really the “monopoly money” we use day to day that is going down, rather than precious metals going up.
But regardless of how you look at it, with the price being so volatile it’s important to try and get as good a price as you can or rather to buy as many ounces of silver bullion as you can for your dollars.
Get to the point! – is it a good time to buy silver bullion?
Anyway, back to our initial question – Is now a good time to buy silver bullion in NZ dollars? Over the last 6 months it certainly looks as good a time as any right now. You can see on the chart below that the price of NZ silver bullion has bounced off $38 twice already since September and at the moment it looks to be doing it again. As technical analysts would say silver bullion has “support” at at this level. i.e. people are buying when the price of silver bullion nears $38…
Now we don’t use technical analysis as the be all and end all, but it’s useful to visualise where the price has been, so as to help determine where some lower risk entry or purchase positions might be. And so, to our eyes at least, the current price of around $38 looks like being one of these lower risk points.
Could silver bullion fall further from here?
Sure it could. But if we go out to a longer term chart we can see that the next level of support would be around the $35 level. So that is only 8.5% lower than where it sits today at $38.26 and also where the longer term 3 year trend line sits at presently.
That said, there’s no guarantee it will go down to there either, which is why we usually like to buy in tranches. Keep some “powder dry” in case the silver price does dip further, but buy some anyway so as not to miss out on decent prices.
Silver in New Zealand Dollars is close to oversold
Another basic technical analysis tool is the Relative Strength Index (RSI). Go here for the full definition:
But basically what you need to know is that the RSI is considered over sold when below 30 and so you can see at 33.45 it’s pretty close to that right now. If you look back over a couple of years you can see that around this level is often where price bottoms are formed…
Silver bullion remains on sale
Who knows exactly but with the amount of uncertainty in the world at present, buying anywhere near here should see us right in the long term is our best guess. Silver remains “on sale” for Christmas! Get it while you can.