May 19, 2024

Silver Market Incredibly Oversold – Technicals Flashing Buy Signal

July 4, 2013 by 1 Comment

silverBy: GE Christenson

For the umpteenth time (actually the 3rd since June 2012), silver has given a buy signal according to my reading of the technical indicators.

Problem: How valuable is technical analysis (moving averages, oscillators, over-sold conditions, etc.) when the silver and gold markets are dominated by computers (High Frequency Trading – HFT) and not human beings?

GATA had this to say: “Technical analysis of a manipulated market like gold has been tedious nonsense for years, but these days, with virtually infinite paper dropped on the gold futures market at illiquid times to drive the price down even as the physical market remains strong, technical analysis has become insulting.

The only analysis worth anything anymore is the identification of the source of all the paper.

The suspects are obvious — Western central banks.”

Gold and silver bottomed in June of 2012, dollar printing moved into high-gear, and the metals “should” have rallied from there. Instead, they did a brief rally and fell to extraordinary lows in April 2013 and even lower lows in June of 2013.

How Extraordinary?

Technical indicators are still somewhat valid (in my opinion) at indicating how much a market is over-bought or over-sold, even if those indicators are less useful (thanks to HFT) at indicating future moves and timing.

Silver RSI (Relative Strength Indicator – 14 period): On a weekly basis, it is the lowest in 40 years of data and nearly that low on a daily basis. This timing indicator suggests that silver is extremely over-sold on both a daily and weekly basis. Gold is similarly oversold.

Gold stocks % bullish Index ($DPGBM): This indicates the % of gold stocks above their 200 day moving average. It currently ranks at zero – gold stocks have been hammered. This indicates gold stocks are very low and hopefully ready to rally. Sentiment toward gold among independent financial advisors, as reported by The Hulbert Financial Digest, is at all-time lows. Prices usually rebound after such lows in sentiment.

COT Net long: The Commitment of Traders data provided by the CFTC indicates the long and short positions of the non-commercials and commercials. Yes, I know, the data is somewhat suspect, but it still has value. Take the net of non-commercial longs less shorts and the net of commercial longs less shorts. Then subtract the net commercial longs from the net non-commercial longs. This difference correlates quite well over a long period of time with the price of silver. When the net long difference (as described above) is low, silver is low and due to rally. As of Friday, June 28, 2013 that net long difference was the LOWEST since the beginning of my data in January 2001 and probably for several decades. This indicates that the large bullion banks (JPM, etc.) are in a position to profit from a rally in the silver (and gold) markets.

The weekly TDI – Trade Signal Line (a technical oscillator) for silver as of June 28, 2013 registered the lowest reading since my data began in 1974. On a daily basis, the April reading was the lowest since 1980, and the June low was only slightly higher. Silver is ready to rally.
My risk/reward index is a weighted blend of COT data, moving averages, relative strength timing oscillators, and disparity between the current price and a long-term moving average. This weekly index has been quite accurate at indicating bottoms in the silver market. What it cannot do is indicate if a lower low is coming in another few months or if the current low is likely to indicate a multi-year bottom. This indicator is currently the most oversold since the beginning of my data in January 2001 and is even more oversold than at the bottom after the 2008 crash in the silver market. The indicator is currently suggesting a major rally is ahead for the silver market – perhaps a multi-year continuation of the bull market. Please examine the graph of silver prices and this risk/reward index.
silver-risk-reward-june

There are many other technical indicators, oscillators, and sentiment measures that suggest a similar story. For all practical purposes, it appears that the large bullion banks and traders (the JPMs, etc.) are now net long in gold and probably net long in silver. The stage is set for a JPM managed rally to take advantage of their net long position, having dumped their shorts in the last two engineered declines in gold and silver.

However, it is possible that their agenda is to generate further support for the dollar and additional declines in gold and silver. With essentially unlimited financial backing, their ability to create and sell huge quantities of PAPER silver and gold and a “free pass” from the regulators, they are the elephants in the room, and they can overwhelm technical indicators, oversold conditions, and sentiment if they so choose. That would not be the case if we had an honest physical market where a company has to have physical product to sell it.

Conclusio

  • The stage is set for the large bullion banks to profit from a rally. Expect a rally.
  • The silver and gold markets are deeply oversold and sentiment in both markets is very low. Are silver and gold investors currently disgusted and disappointed or happy and excited? Right! Rallies occur when practically everyone is disappointed, disgusted, or frightened out of the market. It was the same with the S&P (March 2009, October 1987) and crude oil (December 2008) and gold (October 2008).
  • Now is a time to buy gold and silver, not sell them.
  • Listen to the national media and consider doing the opposite.
  • Silver and gold sentiment and indicators are at multi-year, multi-decade, or all-time lows. The indicators and sentiment suggest the high probability of a substantial rally ahead.
  • The cash markets are strong. Individuals and central banks are buying gold and silver in Russia, China, India, and other Asian countries. Individuals who see the big picture are also buying in Europe and the US.

Does a certificate of deposit paying 1%, gold, or silver look more safe and rewarding at this point in time?

Read:
Silver Cycles: What Next?
Back to Basics – Gold, Silver, and the Economy

GE Christenson
aka Deviant Investor

Filed Under: Currency debasement, Featured, Silver Tagged With: , , ,

Has The Price of Silver Already Discounted Weak Investment and Industrial Demand?

June 27, 2013 by Leave a Comment

american-silver-eaglePrecious metals analyst Suki Coper at Barclays takes a look at the silver market in an interview with Bloomberg Television.

Silver investors have endured a brutal year as the price of silver declined by $12.20 or 39.5% since  the beginning of the year.   Will the price of silver quickly recover as it did after the 2008 collapse or have the fundamentals changed so significantly that a price recovery may be years away?

Suki Coper notes that silver is struggling to find support from both industrial and investment demand which has turned “quite weak.”  Markets are a discounting mechanism and weak demand seems to already be reflected in the price of silver.  The next price move in silver may hinge on whether or not silver demand recovers from this point or continues to decline.

Ms. Coper notes that imports of silver by China, which had been an area of price support, are at the lowest level since January 2006.  The recent slowdown in economic growth in China along with a looming banking crisis does not bode well for a pickup of industrial demand for silver.

The influence of the Federal Reserve on silver could also be negative if the Fed gets more hawkish in its monetary policies.

Filed Under: Featured, Silver Tagged With: , , , , ,

Does The Decline In Gold Signal An Imminent Financial Collapse?

June 26, 2013 by Leave a Comment

GOLD COINBy: GE Christenson

Unsustainable trends can survive much longer than most people anticipate, but they do end when their “time is up” – at the culmination of their time cycles. Examples of these trends include deficit spending, exponential debt increases, overpriced bond markets, and unbacked paper currencies, to name a few. For perspective on how and when these trends could change direction, we analyzed more than 20 different cycles. They nearly unanimously point to tectonic shifts in the months and years ahead. We have been warned!

At this point, we have enough confirmation to accept that the precious metals crash – starting in April of 2013 – was the first warning of what is coming globally.

Financial crashes and economic collapses are not inevitable, but they seem more likely in the next few years, starting later this summer. Preparation might appear to be a waste of time and resources, but lack of preparation could result in the loss of wealth, incomes, jobs, and lives. Perhaps our leaders will guide the world economies through some upcoming hard times, but they might also aggravate those hard times by following policies that benefit the political and financial elite at the expense of the middle class and the poorer classes. Look at current trends in government and banking, and decide for yourself!

The remainder of this decade is likely to be quite problematic for most of the world’s population, particularly the poor. People who have the majority of their assets in stocks, bonds, and paper debt may also be hurt as the currencies are inflated and purchasing power declines sharply.

We have presented a summary of cycles for stocks and bonds, war, gold and silver. We show the source of the cyclic information, the relevant timing, and some commentary.

Summary

There are many cycles that suggest a stock market correction or crash is near. That correction/crash will probably be accompanied by a correction in the bond market that reverses much of the bullish action of the past 30 years. (Signs of a bond bear market are already visible.) Gold and silver should rally substantially as their cycles are turning up while money flees the stock and bond markets and attempts to find safety in an increasingly dangerous world. Financially and socially, many cycles have turned downward; and many will not bottom until later in this decade. Much can go badly wrong during the next seven years. Now is NOT the time for complacency or procrastination.

Along with the decline in equities, bonds, and the value of paper money will come – probably – more social unrest, considerably higher consumer prices for food and energy, bankrupt local, state and national governments, more debt defaults, higher unemployment, possible monetary and/or economic collapse, and a likely escalation in regional and global wars.

A gradual cooling (NOT warming) will reduce crop yields and drive already expensive food prices much higher. The world’s poor will suffer. Hungry people are inclined to rebel and threaten governments. Hence governments will become more repressive and will increase their information gathering on all those viewed as potentially threatening to the status quo.

(Read entire article here.)

GE Christenson

aka Deviant Investor

Filed Under: Currency debasement, Featured, Gold Tagged With: , , , , ,

“Sentiment on Gold and Bonds Incredibly Negative” – Marc Faber Predicts Endless QE

June 22, 2013 by Leave a Comment

Liberty-EagleIts hardest to buy at bottoms since you never know where the bottom is.  Equally hard to do is to buy when the sentiment is incredible negative as it was in early 2009 for stocks and 2000  for gold and silver.

Marc Faber, editor of Gloom Boom & Doom Report discussed the current status of the global markets and investment strategies on Bloomberg Television.

Faber said that the sentiment on gold and bonds in incredible negative and that the Fed, regardless of who winds up replacing Bernanke, will be forced to engage in endless monetary stimulus.   According to Faber “as I said already three years ago, we are going to go with the Fed to QE99.”

Faber notes that the cost of living continues to increase  on a global basis and the benefits of QE are mainly benefiting the richest members of society who hold large amounts of assets.  As money printing destroys the purchasing power of the middle class there will be worldwide social unrest which has already erupted in numerous countries.

As to what the price of gold will be at year end, Mr. Faber declined to speculate saying that “I am not a prophet but I will continue to buy gold.”

Filed Under: Currency debasement, Featured, Gold, US Debt Crisis Tagged With: , , , , , , ,

Some People Are Celebrating The Gold Collapse – Taking A Long Term View On The Future

June 20, 2013 by 1 Comment

American-Gold-EagleMany financial bloggers who never bought into the “yes, it’s important to own some gold” theory have been almost hysterically gloating over the recent divergence between gold and stocks.  An example of this is a recent blog post comparing the performance of the SPDR Gold Trust (GLD) to the Standard & Poor’s 500 (SPY).

Reality cannot be ignored – owning stocks over the past two years has been a black hole for investors compared to stocks

Here’s the ugly chart proving that investors who thought that precious metals had a golden future are wrong.

Courtesy: thereformedbroker.com

Courtesy: thereformedbroker.com

Short term views can be misleading and the biggest gains are made by making the right investment and holding for the long term. The picture of the GLD vs. the SPY looks quite different if we go back to 2005.

courtesy: yahoo finance

courtesy: yahoo finance

In addition, let’s not forget that the stock market as measured by the S&P 500 is just about where it was over a decade ago in 2001.

courtesy: yahoo finance

courtesy: yahoo finance

Considering the perilous state of world economic affairs and notwithstanding the recent significant drop in the price of precious metals, maintaining a position in gold and silver seems like a prudent long term option.

Filed Under: Featured, Gold, Silver Tagged With: , , , , ,

Barclays Sees Gold At $1,500 By Year End

June 19, 2013 by Leave a Comment

gold buffaloIs there any hope for a recovery in gold and silver prices by year end?

Precious metals analyst Suki Coper discuses the prospects for the gold and silver markets in an interview with Bloomberg Television.

Ms. Coper notes that silver tends to follow the gold market but should show more price weakness relative to gold.  In order for the price of silver to stabilize, the precious metal needs investment support from both the industrial and investment side.   Economic weakness in both China and Europe currently portend weak industrial demand for silver.

Despite the current weakness in both gold and silver, Ms. Coper sees the price of gold approaching $1,500 by the end of the year.

Since the beginning of the year, the price of gold has dropped by $303 per ounce or 18%, to a closing price of $1,378.50 at the close of Tuesday’s trading in London.

courtesy: kitco.com

courtesy: kitco.com

Silver’s price decline has been even steeper than gold with a drop of $9.07 per ounce or 29.4% since the beginning of the year.

courtesy: kitco.com

courtesy: kitco.com

Filed Under: Featured, Gold, Silver Tagged With: , , , , ,

An Audit of U.S. Gold Holdings Last Done Over 50 Years Ago

June 18, 2013 by 1 Comment

Fort KnoxDoes anyone really think that gold is unencumbered, unleased, and actually physically there? Yes, I know…

  • They would not lie to us, right?
  • The official numbers must be true, right?
  • They seem like trustworthy people, right?
  • Why wouldn’t it be there?

The official gold holdings ( rounded numbers) of the US Treasury Department are as follows:

Fort Knox 147,000,000 ounces, West Point 54,000,000 ounces, Denver 44,000,000 ounces, Federal Reserve of NY 13,000,000 ounces, other 3,000,000 ounces –  Total – 261,000 ounces.

Glad you asked that question. Why wouldn’t it be there? Gold is a bit like an “anti-dollar.” The Federal Reserve creates new dollars by the trillions – dollars are their product. Wal-Mart sells snow shovels and a few other things, Wall Street sells stocks and everything paper, Hollywood sells dreams and entertainment, but the Fed sells dollars, and they don’t like competition. Gold has been real money for 5,000 years world-wide. Federal Reserve notes have been passed off as money for a few decades, and in that time they have lost most of their value as measured against commodities such as wheat, gasoline, and cigarettes.

It could have been worse! Western central banks (officially) and governments sold a considerable sum of gold during the 1990s to help repress the price of gold and to slow the apparent decline in the value of paper money. They also “leased” an unknown amount of gold to bullion banks who also sold that gold into the market. The leases are still “on the books,” so the central banks officially still own the gold, even though it is probably long gone – likely to China, Russia, India, and the Middle East.

Yes, central banks and governments have motive, means and opportunity to suppress the price of gold. They want to support their product (dollars, euros, etc.) and to defeat the competition – gold. If you were a central banker or treasury official who was inflating his currency and consequently reducing its purchasing power, wouldn’t you want to suppress the price of gold to delay recognition of your involvement in the devaluation process?

So why not just do an audit? This is a simple question with a complex set of answers. Here are a few.

    • The US gold has not been audited in over 50 years. This must seem strange to any thinking person, but it appears unlikely to change.
    • If the Treasury agrees to an audit and the gold is not there, the result will be much unpleasantness – possible indictments, damaged reputations, social unrest, chaos, disillusionment, and destroyed trust – and there is plenty of disillusionment and destroyed trust already.
    • If the Treasury performs an audit and the audit claims the gold is actually there, will anyone believe the results of the audit? Is it truly unencumbered – not sold, leased, or hypothecated? Would we even believe an audit had been actually performed?
    • If the Treasury acknowledges the lack of a credible audit for over 50 years and then says “we don’t think it is necessary,” will anyone take them seriously?
    • The Treasury might claim an audit would be too expensive, but the US government probably wastes the cost of an audit every few hours, so that explanation is likely to sound hollow and stupid.Bottom line: The whole subject of an audit is fraught with potential trouble for both the Treasury and the Fed. The simple solution is to stonewall the audit question and “extend and pretend.”

The problem is that the questions just won’t die. GATA has researched the subject thoroughly and suggests that much of the Treasury gold is probably gone. Eric Sprott has examined the export numbers (official US government export data) and concluded that somehow the US exported about 4,500 tons of gold more than can reasonably be accounted for.

Germany asked for their gold back – a measly 300 tons – and was told it would take seven years to return their gold. It the gold was physically in the vault and unencumbered, it should have taken a few weeks at most. Seven years – really? This must seem strange to any thinking person.

From Bill Holter: “I would like to address the biggest (in my mind) conspiracy theory (fact) of all. It has been “said” for nearly 60 years that the U.S. has 8,400 tons of gold left. First off, there has been no audit done since 1956, not even Senators or Representatives (except for one time in the ’70?s for glance) have been allowed to actually see the gold. “Trust us” is what the population has heard, “trust us” is what foreigners are told…trust us, trust us, trust us. The problem is that so much anecdotal evidence has been dug up by GATA and others. Eric Sprott just last month looked at the U.S. gold export numbers going back 10 years or more and found that 4,500 tons OVER AND ABOVE what are reported as production has been shipped out. Where did that gold come from? When looked at with your 3rd grade mind in gear, there is no way that the gold is really there.

… Forget about all of the past official memos uncovered. Forget all of the evidence that GATA has uncovered over the last 15 years. Forget that Germany asked for their gold and were told “wait 7 years.” Forget that gold and silver prices have not acted like any other market since the mid 90′s and those prices have now crashed 3 times in the face of massive demand. Forget that 2 of the smash downs occurred WHILE the CFTC was supposedly “investigating” the silver market. Forget that 40% of the world’s total gold production was sold in reckless fashion in less than 12 trading hours (who would, could, do this?) FORGET IT ALL! …trust us. … All of this “conspiracy stuff” when put together rather than separately makes sense.”

I don’t know how much gold is left, but I have two (only slightly serious) suggestions:

A very large number of readers on the Deviant Investor site have voted over the past several months regarding what % of the gold they think remains in the US Treasury. The choices were all of it, most of it (>75%), about half (40% to 75%), some (20% – 40%) or very little (<20%). Readers clearly do not believe the official story – about 60% believe very little remains and another 21% believe less than 40% remains. Only 3% think it is all there. A weighted average suggests that the voters on this site believe approximately 20% of the gold physically remains and is unencumbered.

Nixon temporarily closed the “gold window” almost 42 years ago. Since that time, the official CPI shows that the dollar has lost about 83% of its value. For simplicity, let’s assume that 17% of the dollar’s purchasing power remains and assume that 17% of the gold remains.

We don’t know how much of the gold remains. Does it really matter?

Do any of the following matter?

  • Government promises
  • Central bank promises
  • Integrity of politicians
  • Integrity of hundreds of present and past Treasury employees
  • Backing for $Trillions in debt besides “full faith and credit”
  • A possible solution to the massive debt problem of the US government. If the gold is still there, value it at some large number, say $15,000 – $30,000 per ounce, and then back the dollar with gold. This is not my idea – some very intelligent people have advocated it. If the gold is mostly gone, this option is less likely.

Summary

  • Fort Knox: Per the voting and dollar devaluation “method” – assume about 20% of the official gold remains – physically in the vaults, unencumbered, not hypothecated or leased to bullion banks. Yes, I know, this is not defensible, scientific, statistically significant, or verifiable. But it sounds about right to me.
  • Denver: Assume about the same
  • West Point: Assume about the same
  • Federal Reserve Bank of New York: Ask the Germans! Assume very little remains.

How much physical gold do you have? How much do you want when you contemplate nearly $17,000,000,000,000 in official US government debt, another $100 – $200 Trillion in unfunded liabilities, and nothing backing that unbelievable amount of debt except the “full faith and credit” of what is clearly a government that won’t balance a budget and must resort to printing dollars to pay its bills?

How much gold do you have stored in a secure (off-site) facility?

GE Christenson
aka Deviant Investor

Filed Under: Currency debasement, Featured, Gold, US Debt Crisis Tagged With: , , , , , ,

Will John Paulson Cut His Losses On Gold?

June 12, 2013 by 1 Comment

gold1Hedge fund investor John Paulson, who made billions shorting mortgage securities ahead of the financial crash, lost 13% on his gold holdings in May after taking a blood bath in April. 

Billionaire John Paulson, the hedge-fund manager trying to recover from losses related to bullion this year, posted a 13 percent decline in his Gold Fund last month, according to a letter to investors.

The drop brings losses in the strategy to 54 percent since the start of the year, the firm said in the letter, a copy of which was obtained by Bloomberg News. The Gold Fund is the smallest strategy of the $19 billion money manager, with about $360 million, or 2 percent of assets, most of it Paulson’s own money.

Gold fell 5.4 percent and gold equities declined 3 percent in May on speculation the Federal Reserve will scale back its bond purchases, reducing the attractiveness of bullion and related securities as a hedge against inflation.

Paulson holds most of his massive gold positions in the SPDR Gold Trust (GLD) and had increased his position in mid 2012, bringing his total holdings to 21.8 million shares.  The  April 2013 gold crash resulted in losses on Paulson’s gold positions of over $600 million.   Even as other large hedge fund traders such as George Soros  liquidated large gold positions, Paulson remained committed to his gold positions and has told investors to remain invested in gold since current valuations provide a “significant upside.”

At December 31, 2012, Paulson’s position of 21.8 million shares in the GLD was valued at $3.4 billion.  Based on yesterday’s closing price of $133.25, the value of Paulson’s GLD shares would be worth $2.9 billion for a decline of $500 million, a serious loss even for a billionaire.

Seasoned stock traders know that “cutting your losses short”  is the most important rule of investing and often the toughest rule to follow.  Does Paulson know something about the gold market that no one else knows or will he wind up closing his gold positions to avoid further losses?   Since Paulson is the largest investor in the SPDR Gold Trust with an ownership position of 6.5%, liquidation of such a large position is almost certain to put additional downward pressure on the price of gold.

Maybe gold investors should hope that Paulson dumps his entire position in the SPDR Gold Trust.  Even brilliant investors like John Paulson can pull the trigger at exactly the wrong time.  After holding a massive position in both Bank of America and Citigroup for almost two years, Paulson liquidate his entire position in the stocks at the end of 2011 right before both stocks soared.  Since the end of 2011 Bank of America is up almost 300% and Citigroup is up around 100%.  Bottoms are made when the last seller capitulates.  Since gold is incredibly oversold at this point, a Paulson capitulation could be the trigger for an explosive move up in the SPDR Gold Trust.

gld

Courtesy yahoo finance

Filed Under: Featured, Gold Tagged With: , , , , ,

Will Silver Plunge Below $15 or Rally Back Over $50?

June 11, 2013 by Leave a Comment

1881-CC-Morgan-DollarBy: GE Christenson

Silver prices peaked in April 2011 and dropped about 60% over the next 25 months. Sentiment by almost any measure is currently terrible. Few are interested in silver; most have lost money (on paper) if they bought in the last two and one half years, and the emotional pain seems considerable. It reminds me of the years after the NASDAQ crash in 2000.

So will silver drop under $15 or rally back above $50?

To help answer that question, I examined the chart of silver for the last 25 years and identified several long-term cycles. Then I constructed a spreadsheet that attempted to model the price of weekly silver based on those cycles and a few assumptions.

Assumptions

  • Use only long-term cycles – a year or longer.
  • The weight assigned to each cycle is approximately proportional to its length. A 200-week cycle should be approximately twice as heavily weighted as a 100-week cycle.
  • This is NOT a trading vehicle but a long-term indication of reasonable price projections based on past relationships. Those past relationships may or may not continue, even if they have been valid for over 20 years.
  • Keep it simple. Do not over-complicate the model or aggressively “curve-fit” it.
  • Prices are assumed to rise more slowly than they fall, so 62% of the cycle is related to the rising portion of the cycle, and 38% of the cycle is related to the falling portion of the cycle.

Data

Low-to-Low cycles: 65 weeks, 72 weeks, and 234 weeks
High-to-High cycles: 102 weeks
Exponential growth: 1/1/1990 – 6/30/2002: no growth – 0.0%/year
6/30/2002 – present: 21% per year, calculated weekly

Process

Find the beginning dates (lows) for the 65, 72, and 234 week cycles, and assign those beginning dates an index value of -1.0. Proportionally increase those index values from -1.0 to +1.0, and then reduce those index values from +1.0 to – 1.0, and repeat for each low-to-low cycle. Use the beginning index value on the 102-week high to high cycle as + 1.0. Extend the proportional increases on all time cycles from -1.0 to + 1.0 so that period takes 62% of the cycle length.

Assign each cycle a weight approximately proportional to the cycle length. Use a beginning value and calculate the exponential increase (0% or 21% per year) for each week, and then add or subtract the percentage changes for each weekly time cycle. Adjust the cycle index weights to obtain the best visual fit on a graph of actual silver prices versus the calculated price of silver.

What Could Go Wrong?

  • The exponential increase might not continue from 2013 forward. I doubt it, but it is possible.
  • The cycles, although relevant for over 20 years, might be less relevant from 2013 forward.
  • The calculated price was “curve-fit” to the actual prices, and that “curve-fit” result might be less accurate from 2013 forward.

Results

Statistical correlation over the last 20 years is about 0.95. The calculated silver price is generally consistent with the actual silver price, even though occasional large variations are clearly evident.

Click on image to enlarge.

Highlights

Calculated low: 2/4/05 at $4.96
Actual low: 5/7/04 at $5.60

Calculated high: 3/17/06 at $13.33
Actual high: 5/12/06 at $14.24

Calculated high: 5/4/07 at $18.13
Actual high: 3/14/08 at $20.66

Calculated low: 12/12/08 at $8.15
Actual low: 10/24/08 at $9.30

Calculated high: 3/2/12 at $42.98
Actual high: 4/29/11 at $48.59

Calculated low: 5/10/13 at $23.32
Actual low: 5/17/13 at $22.25 (actual weekly low, so far)

The Future

This simple model, which uses only four cycles and an exponential increase, indicates that a low in the silver price was expected approximately February – July 2013 and that the next high is expected approximately Mar – October 2014 in the $50 – $60 range. Further, the model suggests that a silver price of $90 – $110 is possible in the September 2015 – March 2016 time period.

Caveats!

There are many. This is not a prediction, it is simply a projection based on the entirely reasonable, but possibly incorrect, assumption that silver prices will continue to rise about 20% per year, on average, and that these four cycles will push actual prices well above and below that exponential growth trend.

Why will silver prices continue to increase? Our current monetary system depends upon an exponentially increasing debt and money supply. It seems likely that the US government will continue to run massive budget deficits and thereby increase total debt. In addition, the central banks of Japan, the EU, and the US will continue to monetize debt and increase the money supply to promote asset inflation and to overwhelm the deflationary forces in their respective economies. Silver supply increases slowly, the demand increases much more rapidly, while each Dollar, Euro, & Yen purchase less, on average, each year. It seems quite reasonable to expect that silver (and gold) prices will increase substantially from their current low level. Read: Silver – A Bipolar Roller Coaster.

Timing

The model was basically correct (over the last decade) on timing and price with some large variations. Clearly there are more factors driving the price of silver than four simple cycles. Those political, emotional, and economic factors will push the price higher or lower, sooner or later, than the model indicates. Regardless, it has some value indicating the approximate price and timing for long-term highs and lows in the price of silver.

Use it while appreciating its limitations. Read: Back To Basics: Gold, Silver, and the Economy.

GE Christenson
aka Deviant Investor

Filed Under: Currency debasement, Featured, Silver Tagged With: , , , , ,

Gold and Silver Investors Need to Ask Themselves 10 Basic Questions

May 28, 2013 by 1 Comment

1933-double-eagle1Rick Rule listed 10 key questions regarding today’s economy. They are:

10 Questions for Precious Metals Investors

  • Is the financial crisis in the Western world over?
  • Have the G20 countries balanced their budget?
  • Did the commercial banks manage to become solvent?
  • Are (real) interest rates positive or negative?
  • Is a global competitive devaluation to increase exports still ongoing?
  • Is the European periphery still financially challenged?
  • Do the Asian countries still have a cultural affinity with precious metals?
  • Which are the US budgetary issues and solutions?
  • Are the derivatives from large banks still a problem for economies and client portfolios?
  • Can liquidity solve the issue of insolvency?

If these are the questions, then gold and silver are two good answers.

But, let’s approach these questions from a different direction.

  • Have gold or silver ever defaulted?
  • Do gold or silver have counter-party risk like EVERY paper investment?
  • On January 1, 2000 the Dow was about 11,500, gold was priced at $289, and silver was priced at $5.41. As of May 24, 2013, those numbers were: Dow: 15,303, gold $1,386, silver $22.49. Which was the best investment?
  • Gold fell (in 21 months) from over $1,900 to about $1,320. Does that mean the gold bull market is over? The Dow crashed from 14,100 (October 2007) to about 6,500 (March 2009), and then rallied back to new highs. Don’t exclude the possibility of new highs for gold and silver in the coming months.
  • Why are Chinese businesses, individuals, and their central bank buying gold as rapidly as possible? Why does the Chinese government refuse to allow any gold to be exported? Why does China (world’s largest gold producer) additionally import a massive amount of gold every year?
  • Ask the same for Russia, India, and much of Asia. What do they know about the VALUE of gold that the EU and the USA (who are selling gold) don’t understand?

Further:

  • Gold and silver have gone up and down, when priced in unbacked paper currencies. The same is true for trucks, diamonds, the Dow Index, laundry detergent, gasoline, cigarettes, and wheat. Price increases and volatility will continue.
  • Gold, silver, and the national debt have increased exponentially since Nixon severed the link between the dollar and gold in 1971. All three will continue to rise. Gold and silver will occasionally rally too far and crash, while the national debt will increase until politicians no longer enjoy spending other people’s money.
  • Goldman Sachs (and many others) have said gold is in a bubble. The same individuals and groups probably did not see the bubble in Internet stocks and housing. Do you trust them or the 3,000 years of history during which gold and silver have been real money and a store of value?
  • If JP Morgan (and others) can make huge profits using computers, complex mathematical algorithms, and High-Frequency-Trading, then they will. Often their trading temporarily drives the prices for gold and silver down. After the markets have been driven far enough down, the same trading process is used to drive the prices higher. Expect it!
  • Silver has dropped from about $49 (April 2011) to just above $20 (May 2013) – almost a 60% drop in price. Does that mean it will continue to drop more – perhaps to $10? Silver has retained its value, on average, for 3,000 years but has fallen in price for two years. On the basis of price action in those two years, most individuals (based on sentiment measures) have chosen to trust unbacked paper currencies issued by an insolvent central bank and an insolvent sovereign government instead of silver. This is typical of market bottoms, even if it is not sensible.
  • About 4.5 years ago (October 2008) silver crashed to a price bottom where “everybody felt” like it was hopeless to expect silver to rally again. About 4.5 years before that (May 2004), silver also crashed to a price bottom where “everybody felt” like it was hopeless to expect silver to rally again. But, in fact, the silver rally off the low in 2008 was over 450%, and the rally off the 2004 low was over 175%. Silver will rally again.
  • We may not trust bankers and politicians to effectively run the country, but we can trust them to “print money” and to spend in excess of their revenues. Consequently, we should trust them to drive the prices, as measured in unbacked paper currencies, for gold and silver – MUCH higher.

GE Christenson
aka Deviant Investor

Filed Under: Currency debasement, Featured, Gold, Silver, US Debt Crisis Tagged With: , , , ,