Silver is up more than 180 percent from its 2010 lows. Many readers hold silver along with gold as an inflation hedge, and over the long-term, both investments are still likely to do very well from here.
In the short-term, anything can happen and after huge run-ups like we see in silver, brief downturns often follow.
Although brief, the declines can be significant and no one likes sitting through large losses. And the term "brief" can indicate a few years, as we saw in the stock market, which suffered multiyear declines in 2000 and 2008.
Buy-and-hold investors like to say they in an investment for the long-term and these declines don’t matter. The reality is that they do matter and they destroy wealth for a period of time. If retirement approaches during a decline, life plans may need to be changed while the market recovers.
Traders often look at the rate of change in price to spot bubbles. When the six-month rate exceeds 40 percent, a bubble is usually in place and caution should be exercised. This is calculated by comparing the current price to the price six months ago. The current reading in silver is about 85 percent.
At this level, traders should consider selling some silver if it closes below $40 an ounce. There will be a chance to buy back in at a lower price because there always is. Rate of change may help, since it signaled its last buy when silver sat at $9.90 an ounce.
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