The Silver Sentiment Cycle

The following chart shows:

Silver Prices:  1972 - 1979

Silver Prices: 1972 – 1979

  •  Silver moved upward from about $1.40 in 1971, rallied to about $6.40 in March 1974, and fell to about $4.30 in August 1977.
  • The March 1974 peak took about 3 years and ended about 4.55 times its starting point.
  • The August 1977 low took another 3.5 years and fell about 33% from the peak price.

Now look at the following chart of silver prices from 2008 – 2014.

 

Silver Prices:  2008 - 2014

Silver Prices: 2008 – 2014

  • Silver moved upward from about $8.53 in October 2008, rallied to over $48 in April 2011, and fell slightly below $19 in September 2014.
  • The April 2011 peak took about 2.5 years and ended at about 5.7 times its starting point.
  • The correction into the September 2014 low has taken about 3.4 years and declined about 61% from its peak.

Do you see the similarities?  I have placed sentiment labels on both graphs.

Sentiment             1971 – 1977              2008 – 2014

 

Takeoff                      1.40                            $8.53

Bear Trap                  2.50                            14.70

Enthusiasm               3.50                            23.00

Euphoria                    4.50                            29.00

Greed & Delusion     6.00                            44.00

Bull Trap                    3.80                            27.50

Denial                        3.90                            26.50

Capitulation               3.80                            19.00

Despair                      4.15                            18.70

What is Different This Time?

Probably not much!  The patterns are similar, but the potential rally from present prices in 2014 looks like it could be even larger than the 1977 – 1980 rally.  Why?  See below.  In the early 1970s silver went from “ho-hum” to “enthusiasm” to “wow, who would believe it could go to $6.40?”  After the 2008 crash silver went from “going back to 5 bucks” to “enthusiasm” to “wow, who would believe it could go above $45?”

As a reminder, after silver rallied to the then astounding price of $6.40 in early 1974, it crashed back to $3.80 and then traded sideways for 2 years.  Less than 3 years later it had briefly traded at $50.00, due to a combination of inflation, debt and deficits, political issues, conflict with the USSR, fear, a market corner, and dollar weakness.

After rallying to another “unthinkable” price of nearly $50 in 2011, silver crashed to about $18.50.  However, in another 3 -5 years, perhaps in 2017 – 2019, I expect silver will have rallied to $50, $100 or maybe $300 or more, due to a combination of multiple wars, unpayable debts, inflation, deficits, bailouts, bail-ins, massive “money printing,” inflationary expectations, QE, potential hyperinflation, considerable fear, currency wars, counter-party risk, political issues, derivatives, conflict with Russia, economic and dollar weakness, and the weakening or outright loss of the dollar’s global reserve currency status.

We know that financial television (and others) expect (hope) the S&P to rally and silver to collapse, but we must remember who pays the bills for financial television, buys the advertising, and supports the various fictions in our current economic and political environment.

Along with many others, I expect that silver will rally for the next 3 – 7 years.

Favorable for Silver Prices                Unfavorable for Silver Prices

More debt and more war                            Fiscal sanity and peace

Congressional corruption                           Congressional honesty

Weaker dollar                                             Strong dollar

$10 gasoline                                              $3 gasoline

Considerable price inflation                       2% inflation

Asian gold and silver purchases               Weak demand from Asia

Ukraine and Middle-East wars                   Peace in our time

Low congressional approval ratings           High congressional approval ratings

Amateur hour in foreign policy                   Strong foreign policy

Money flow out of bonds into silver            Money flow out of silver into bonds

Money flow out of S&P                               Money flow out of silver

More restrictions on mining                        Fewer restrictions on mining

Lack of exploration for new silver               Discovery of new silver deposits

Increasing energy prices                            Decreasing energy prices

More fiscal insanity                                     A balanced budget

More “money printing”                                Back to a modified gold standard

I expect that silver will rally well over $100 in the next few years because most or all of the “favorable” and few or none of the “unfavorable” items listed above will occur.

Does this month look more like another bottom in silver and another top in the S&P, or does it look like a new paradigm with responsible leadership in the political and financial worlds, lasting employment, prosperity for all, declining debt, and a balanced government budget?

Are you buying silver instead of bonds?  Are you buying silver instead of S&P indexed funds?  Are you buying gold instead of earning 0.10% interest in your saving account? Are you preparing for a financial future based on real assets instead of paper promises secured by the integrity of politicians and bankers?

Suggested Reading:

 

My new book:                Gold Value and Gold Prices 1971 – 2021

Greyerz                          Great Danger Looms

Arabian Money              Sam Zell – Imminent Correction

 

Gary Christenson

The Deviant Investor

GEChristenson.com

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10 thoughts on “The Silver Sentiment Cycle

  1. This time is totally unique as compared with any time in history. Silver has been used to keep the price of gold down. It is an easy market to control….as long as there is physical. Won’t be much left soon and then the shtf.



  2. Actually, I am not sure why I sold silver a couple of years ago, at $48/oz, but silver prices just seemed to be out of line. Now, I guess I should be buying some back, but equity investments appear to have some life left because money is fleeing from Europe into USA equities. However, I like the prediction of $50/oz to $100/oz silver by 2018, so will be making some adjustments. If the breakup of the USA federal system comes around, that $100/oz may be very conservative.


  3. Christenson fails to mention that the early 1970’s price rise to around $50 the ounce was due to the Hunt brothers’ attempt to corner the market.


    • Hmmm. I did say “a market corner.” Did that NOT count because I did you use the words “Hunt Brothers?” Clearly the market corner in 1979 – 1980 was important, but so was the inflation of the 1970s, dissatisfaction with then President Carter, debt, deficits etc. It was more than the Hunt’s – there will always be something to blame when a bubble occurs and then crashes.
      The Deviant Investor


      • It was a market corner in 1980, but it was a legal one until the regulators changed the rules midstream to force smaller holdings abruptly. That was dishonest, what the Hunts did wasn’t. They were patriots, but I don’t think that the history is being told that way. I don’t know for sure since I was born in 77′ but that’s my opinion for now. Today theres no prosecution for illegal trading, except for Martha Stewart. Justice served! Lol


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