Silver: A Collapse and a Rally

COMPLAINT FROM A SILVER BULL:  The last 3 plus years have been difficult.  My faith in the silver bull market and my fear of fiat currencies has been shattered.  There is no joy in “Silverville” – nothing but worry and despair!

BOAST FROM A SILVER BEAR:  Investing in silver is dangerous and foolish.  The last three years have proven that us “bears” are correct.  Paper assets are the best!

We might as well discuss the success or failure of the “War on Terror,” the “War on Ebola,” and “ObamaCare.”  Their appearance of success or failure is largely a matter of perspective, time horizon, expectation, and personal bias.

Instead of dwelling upon these largely useless arguments, what does the DATA from the silver market tell us?

SENTIMENT:  Sentiment for gold (and silver) is very weak – as low as it was at the bottom in June 2013.  This suggests both gold and silver are again at or near a bottom.

GOLD TO SILVER RATIO:  The ratio is currently about 66 – near the high end of the slowly declining range for the past 27 years.  See the graph and note that a high ratio indicates silver is too inexpensive in relation to gold.  All of the ratio peaks (February 1991, March 1995, March – May 2003, October 2008, and July 2013) occurred at significant silver lows.

Gold To Silver Ratio - 27 Years

Gold To Silver Ratio – 27 Years

OVER-SOLD TECHNICAL INDICATORS:  The silver market is “over-sold” once again, as it was in October 2008, June 2013, and December 2013.  Note the chart of weekly silver and the low reading on the TDI_Trade_Signal_Line.  Other weekly oscillators show similar readings.  The daily chart and monthly chart for silver and the daily and monthly TDI oscillators also show “over-sold” conditions.  Such “over-sold” conditions are (eventually) followed by rallies.  This is not to say a market can’t become temporarily more “over-sold” but the probabilities have shifted toward rally instead of decline.

Silver Prices Weekly - 7 Years

Silver Prices Weekly – 7 Years

CYCLES:  Monthly cycles are of little use for trading, but they do help with a big picture view for investors.  Silver made an important low in July 1997, another low in March 2003, a major low in October 2008, and what appears to be a major low in September 2014.  They are all approximately 5.75 years apart.

Silver Monthly Prices - 30 Years

Silver Monthly Prices – 30 Years

DEBT:  People have written about out-of-control and unpayable debt extensively.  Since currency is created as debt, and most or all governments around the world run deficits and perpetually increase their debt, it is the basis of our current financial system.  A quick review:

Year                                National Debt        Average Silver Price

                                        (official)                        (from Kitco.com)

1913                                 $3 Billion                                 $0.58

1971                                 $398 Billion                             $1.39

2014                                 $17,700 Billion                        $20.07

National debt has increased exponentially since 1913 at about 9.0% per year, and since 1971 at about 9.2% per year.  Silver has increased exponentially since 1913 at about 3.6% per year and since 1971 at about 6.4% per year.  Also exponentially increasing, on average, are gold prices, crude oil prices, politician salaries, postage prices, the number of government programs, food prices, and military spending.

Do you believe that politician salaries, military spending, and national debt will continue increasing?  So do I!  Consequently I believe that consumer price inflation is alive and well, and that we should expect a much higher cost of living in the next few years.  In the long-term, I believe the prices for gold and silver will increase even more rapidly.

SUMMARY:

 

Big Picture – the next decade:  Prices for what we need, food and energy, will continue to increase as long as we live in a debt based fiat currency economy.  Silver and gold prices will rapidly increase along with debt, the money supply, and politician promises.

Medium Term – several years:  Silver cycles indicate another important low probably is occurring about now.  Expect silver prices to rally in the next several years.

Monthly Prices:  Silver is “over-sold” based on the charts, the TDI oscillator, and many other oscillators.  Expect silver prices to rise.  The gold to silver ratio is high which indicates relatively inexpensive silver prices and higher silver prices ahead.

Weekly Prices:  Same as monthly prices – “over-sold” and ready to rally.

Daily Prices:  They are also “over-sold” but pretty much controlled by the High Frequency Trading algorithms and the temporary needs of the “powers-that-be.”

From Michael Pento:  Why Goldman Sachs is Wrong on Gold.

“The Fed will not be raising rates anytime soon.  To the contrary, Ms. Yellen will soon be forced back into the money printing business in an attempt to; force higher money supply growth, push real interest rates further into negative territory, keep the dollar from rising, and to make sure debt service payments remain under control. 

Soon we will have a perfect storm in which gold will rise.  The next phase in the gold bull market will include the four conditions of; negative real interest rates, rapid money supply growth, a falling dollar and skyrocketing deficits.  Investors that have the foresight to realize this opportunity today stand to benefit greatly in the near future.”

 Believe it!  Read my book:  “Gold Value and Gold Prices From 1971 – 2021.”  (available at Amazon.com and GEChristenson.com)

 

Gary Christenson

The Deviant Investor

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16 thoughts on “Silver: A Collapse and a Rally

  1. Much of the comments I´ve read have certain logic. What hasn´t been mentioned that I feel is important to address is that we know what capacity of silver production exists, what I´ve learned is there is still much silver available and easily mined.


    • My understanding is that silver is getting more difficult to mine and far more expensive to mine. In fact, I read that the current cost of production is higher than the current market price. I think prices for silver will go higher.
      The Deviant Investor


  2. The smackdown of silver over the last 2 weeks in particular looks very much like an orchestrated effort. Why did the Chinese open their new Bullion Exchange 11 days earlier than planned after last weeks smackdown?? Something very significant to both gold and silver prices is happening beneath the radar here. Yes, it is very painful to watch silver go to $17.90 today, but I started buying it in size in 2003 for around $7 per ounce; started buying Gold in 1997 when it was about $280 per ounce and haven’t sold one ounce since. Plus, I do remember that I had a client buy $1 Million worth of silver at a pop in Fall of 2008 when the price was about $9 after Panic Number One. Still almost a double from that Waterfall Low. However, I would not be surprised if central banks such as China and India are using the corrupt Comex futures market to get the price down to a point where they can load the boat with both cheap Gold and Silver. Something is behind this bear market capitulation move, and would not be surprised if a major default is in the winds and those in the know are gaming the market to acquire more ounces than could be possible otherwise. But you can almost feel the static in the air. Sage of Wexford.


  3. Not only have the pms been beaten down, but the opportunity to build wealth has been in the stock market. Not many gurus saw this coming especially the folks who called the coming crash in real estate and the stock market. Macro Mavens called the trouble and missed the asset appreciation after 2009. Felix Zulauf called the trouble and the BOTTOM in 2009, but thought it was a rally not a bull.
    Jeremy Grantham at GMO called the coming trouble and the bull market to follow. I think he is the only one I know who got it right on. He was never a precious metal guy either.


  4. Besides being a monetary metal, silver is also, to a large degree, an industrial metal. As such, it will suffer when the global economy turns down, which I believe is coming soon or is even already underway.

    Plus, the silver market is tiny (and easily manipulated) and is under the huge influence of the speculators. Although it tends to outperform gold (both on the upside and on the downside), its volatility is way too much for my taste. Simply not worth the risk, as far as I am concerned. I’ll stick to trading gold, thank you very much.


  5. It seems that silver will be a way by which a person can escape the devaluation of his personal wealth. There must be other possibilities, but it seems that beyond owning one’s personal residence, silver and other precious metals and recgnized collectables are the only games in town.


  6. When comparing the comments of a silver bull and a silver bear about the last three years, I disagree with your analysis of that conversation.

    “We might as well discuss the success or failure of the “War on Terror,” the “War on Ebola,” and “ObamaCare.” Their appearance of success or failure is largely a matter of perspective, time horizon, expectation, and personal bias.”

    There is NO way to discuss the last three years (The topic the two were talking about) and say it was positive. Nothing in silver was positive as it dropped over 50%. It is not “personal bias” that says so. And there is total agreement from both the comments you posted. Both your bull AND your bear said the last three years have been a downhill slide. So, UNLIKE the war on terror or Obamacare, which are subjective topics and can be argued based on personal bias, I see NO side of the discussion arguing that silver has had a good past 3 years, regardless of bias. I hate to agree with the negative reality, but facts are facts, and the past three years HURT. Objective. Numerical. Reality.


    • Silver had a fantastic run for about 2.5 years – moving from under $9 to nearly $50. It has since dropped under $19 over 3.5 years. Corrections happen. I think it is a matter of perception whether or not silver is still moving higher. Yes, it clearly has moved lower for 3.5 years, but as I perceive it, the long trend is still very much up.
      The Deviant Investor


    • If you bought coins at a high price, hold.
      You have the metal in-hand. Buy some more with current savings at a good (dollar) price.

      Don’t sell and lock in losses.

      The paper markets are being manipulated to make you lose hope.
      Metals in-hand are insurance, not to buy fancy vacations, but to assure eating like during a recent Argentina-style or Zimbabwe paper money confusion-collapse.
      Mining and refining takes not just “money”, but huge inputs of oil/machines/skilled human labor (like modern farming). We are lucky to be able to own real money without being part of the feudal elite. It will serve us well when the music stops.



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