Spot silver to rise to $54.78 by end of 2011: Analyst

Spot silver may surge to record highs above USD 50 an ounce by the end of 2011, based on technical chart observations by Reuters analyst Wang Tao.

Silver was one of the strongest performers of 2010 and has rallied by a third so far in 2011, to trade at a 31-year high of USD 41.93 on Monday. "The super bull cycle appears to have started from a low at USD 3.53 in 1993, rising during the subsequent 15 years to the 2008 high at USD 21.24," Wang said. "That can be labeled as wave "A", and the subsequent sharp drop to the 2008 low at USD 8.42 labeled as a wave "B"," he said, adding that prices could continue to rise toward USD 55. "Wave "C" could take silver to USD 54.78, the 261.8% Fibonacci projection level of the 1993 low to 2008 high." Elliott wave theorists try to predict market moves by recognizing repetitive patterns or waves on the chart. Those waves form in almost all types of markets form stocks and foreign exchanges, to commodities and real estate. Wang noted the current wave "C" is part of the "A-B-C" corrective wave cycle, which often travels much further than the wave "A", a phenomenon called extension. "The projection of the extended wave "C" based on Fibonacci ratios takes the price of silver to $54.78, which is likely to happen before the end of the year," Wang said. Waves basically fall into two types, the impulsive wave, which is typically composed of five waves marked in numbers, and the corrective wave which is essentially broken down into three waves labeled with letters. Fibonacci sequences -- named after the Mediaeval mathematician Leonardo Fibonacci, who identified a sequence of numbers created by adding the previous two numbers -- form the basis of the golden ratio, and a method to predict future market moves. Examples of the numbers are 3, 5, 8, 13 and so on until infinity. If two adjacent numbers are used to divide one with another, the ratios work out to be 0.618 or 1.618. The larger the pair of numbers, the closer the result to the golden ratio. "The wave "C" has surpassed the 161.8% Fibonacci projection level at USD 37.07, based on the length of the wave "A", and it is highly likely for the uptrend to extend to the 261.8% level at USD 54.78." However, the bullish outlook may break down, Wang said, if prices retreat to below $37.07. "It seems the current sharp surge is due for a correction and a deep fall from here could trigger a bearish reversal if we break below USD 37." ** Wang Tao is a Reuters market analyst for commodities and energy technicals. The views expressed are his own. No information in this analysis should be considered as being business, financial or legal advice. Each reader should consult his or her own professional or other advisers for business, financial or legal advice regarding the products mentioned in the analyses. **