For those who may not closely follow silver prices it may come as a surprise to learn that 2013 was the worst performing year in more than three decades. Prices fell an astonishing 36% before finding support near $18.50. Since July 2013, the story has been one of extreme volatility. The bulls managed to send the price above $25 in early September only to see it drop back toward $18.75 by the end of the year. The start of 2014 looked promising for the bulls and again the price was able to make its way back to $22. Unfortunately, weak investment demand and slower global growth have driven prices back down to $19. For traders the question now is whether the price is going to bounce higher off its defined support level or if this is the beginning of a long-term move lower. For more, check out A Silver Primer

Easy Access To Silver

Many traders are not at the level where they feel comfortable to open a futures account. Luckily, the iShares Silver Trust ETF (NYSE:SLV) was created to closely track the price of silver and act as an inflation hedge. The fund is a popular tool for those who want to invest in silver but not physically hold it. As you can see from the chart below, prices have fallen sharply over the past few years, but have managed to find support near $18 (blue dotted line). The period of consolidation since July 2013 suggests that the market is near equilibrium and the bulls and bears are currently fighting over what the direction of the next leg will be. For more, check out Technical Analysis: Introduction.

The declining 200-day moving average (red line) currently suggests that the long-term trend will remain downward. As you can see from the chart, the bulls were unable to see a sustained breakout when the price moved above the 200-day moving average in February (red arrow). The immediate downward reaction shown by the bounce off the nearby long-term descending trendline suggests that the bears are in control of the direction and that it will require a fundamental shift to move prices higher. Notice how the price is nearing the intersection between the descending trendline and the long-term support level (blue dotted line). This suggests that volatility will likely increase dramatically over the coming weeks and only those who can handle extreme risk should be trading in silver-related assets.

Increasing Exposure To Silver

Mining companies that generate revenue primarily from the sale of silver may be another venue for traders looking to take advantage of increased volatility. One of the biggest players in the space is Silver Wheaton Corp. (NYSE:SLW). Taking a look at the chart you’ll notice how declining silver prices have weighed on the company's share price. The nearby resistance of the 50-day and 200-day moving average suggest that the next move will be lower. In the event that the price of silver falls below key support levels (shown by the blue horizontal line) then traders would watch for prices of companies such as Silver Wheaton to make a move lower. For more, see The Best Way To Buy Silver

The Bottom Line

So far in 2014 the price of silver has managed to increase 12% and then give it all back. With the spot price of silver nearing the intersection of a declining trendline and a long-term support level, traders are likely to suggest that volatility is on its way over the coming weeks. If the bears continue to dominate the direction it wouldn’t be surprising to see companies such as Silver Wheaton continue to lead the way lower.

Disclosure: At the time of writing, Casey Murphy did not own any shares of companies mentioned in this article.

Related Articles
  1. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  2. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  3. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
  4. Stock Analysis

    The Biggest Risks of Investing in SandRidge Stock

    Learn about the significant risks of investing in SandRidge. Read how the company may not be able to service its substantial debt load.
  5. Economics

    Will Silver Recover in 2016? (SLV, GLD, JJC)

    The end of the silver downtrend is likely to coincide with similar recoveries in gold, iron and copper.
  6. Stock Analysis

    The Top 5 Silver Penny Stocks for 2016 (LODE,AG)

    Learn about five of the top silver penny stocks and why investors may want to consider adding them to their investment portfolios in 2016.
  7. Chart Advisor

    These 3 ETFs Suggest Commodities Are Headed Lower (COMT,CCX,DBC)

    The charts of these three exchange traded funds suggest that commodities are stuck in a downtrend and it doesn't look like it will reverse any time soon.
  8. Trading Strategies

    4 ETFs To Trade the Russian Ruble (RSX, ERUS)

    Discover which exchange-traded funds (ETFs) provide investors with the greatest exposure to the Russian ruble and learn about the risks that come with each.
  9. Chart Advisor

    3 Charts That Suggest Now Is The Time To Invest In Real Estate (VNQ, SPG,PSA)

    Real estate assets have some of the strongest uptrends around. We'll take a look at three candidates poised for a move higher.
  10. Chart Advisor

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  3. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  4. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  5. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  6. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center