As my impending trip to Hong Kong looms closer, I have been rummaging through a whole bunch of videos, charts and articles on the Chinese markets.
So I was pleasantly surprised to come across a video of millionaire investor, Robert Kiyosaki, preaching the wisdom of Chinese investors. In this video (which you can watch below), he asserts that “we should be doing what the Chinese are doing” and buying commodities – in particular, silver.
To be fair to Kiyosaki, the video is six months old but I picked it as I wanted to see whether the wisdom of the Chinese still holds true today.
It is certainly true that since January 2009 to the time of making that video interview (January 2010 approx.), the price of silver had risen by 60%. However, as commodities go, I would argue that silver has been rather dull in its performance since the beginning of this year.
OK, first of all, let me lay my cards on the table. I am not a buy-and-hold investor. I do not like buy-and-hold and neither do I recommend or teach it to anyone (for very good reasons that I will go into in upcoming blogs).
Admittedly, I am assuming Kiyosaki was referring to investing in silver (and other commodities such as Gold) as a long term investment. But even he admitted that he was investing in silver since it was at $3 and not since its current prices.
Granted that between February and May 2010 silver yielded 30%, and it reached highs of $19.70. However, I have reason to be sceptical about further growth in this commodity this quarter.
A look at the current market trend of silver (see above chart) shows the commodity to be consolidating in a triangle pattern since May. Silver needs to break the top-side of this triangle with strong volume in order for it to generate any kind of long signal (a signal to buy).
In any case, even if it did break the triangle pattern to the upside, it does not end there. There is strong resistance ahead in the form of its previous all time highs in 2008 at $20.54.
Why does this matter?
As any professional trader knows, proper money management and risk/reward analysis are the keys to success in trading.
Which means, that even if we were to “invest” in silver now (as opposed to waiting for a proper breakout signal), an entry at $18 would mean a probable exit at $20. This would leave the long-term investor with a mere $2 reward (or 11% gain).
That is assuming the long-term investor is following some kind of money management system. If he isn’t then he or she will have to wait for a break above the $20 highs for any sign of further growth.
Furthermore, the MACD histogram (see above chart) is showing a divergence with the rising price of silver on the weekly charts. The MACD peaks get smaller despite silver putting in higher highs. Most technical analysts would read this as a sign of weakness in silver. Personally I would reserve my judgement until a breakout from the triangle has occurred (to the upside or downside).
I would like to hear your views too and feel free to let me know what YOU think. Leave me a comment below, even if you disagree with me.
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