"Everything you need to know about gold"
After a recent spike to the upside over the past seven days, both gold and silver have turned negative again and could be headed back to their recent low points reached early in the day on Monday, November 30th.
The movement in both gold and silver is evident of a decided shift in trend direction to the downside. What happens after prices return to their recent lows could prove interesting; or downright discouraging if you are expecting a resumption of the trend to higher prices.
GOLD VS. SILVER
In the five months between March and August this year, the price of silver increased from a fourteen-year low of $11.77 per ounce to a seven-year high of $29.26. That is a whopping gain of one hundred sixty-three percent.
Meanwhile, gold’s price rose from its low of $1472 per ounce to a recent high of $2061. That represents a gain of forty percent, which is certainly a handsome number. Nevertheless, silver’s performance outshone gold by a ratio of four-to-one.
However, five months doesn’t tell the whole story. For those who were and are, hopeful that this is just the beginning of silver’s day in the sun, be warned. Looking at the bigger picture historically, silver can’t hold a candle to gold.
SILVER’S APPARENT RECOVERY
Some might say “Silver’s performance over the past several weeks has been nothing short of phenomenal.” Others talk and act as if all of their wildly crazy price predictions have already come true.
The chart (source) below is a one-year history of daily prices for SLV (Silver ETF)…
As of this writing, SLV is up forty-eight percent since striking its most recent low of $10.86 two months ago. It would not be excessive to call it an impressive rally of magnitude.
There are, however, some items of note that might dampen one’s enthusiasm if you are looking for an infinite extension of the current rally.
The rally has come immediately on the heels of a nearly forty percent decline in silver over the preceding four weeks. As such, it is, at this point, merely a retracement of previously lost ground.
In addition, silver is still more than two dollars per ounce lower than it was when the price price peaked earlier this year. This means that silver needs to increase by another fourteen percent just to get back to its February price point just before it collapsed.
Let’s remember – when silver was at $18+ three months ago, we were being told it was last call to own silver below $20 per ounce; and the silver bullet train was supposed to be fueled by an impending stock market crash.
The stock market crashed; and silver crashed faster and harder. What will happen to silver prices when stocks crash again?
While you are thinking about that, lets look at two more charts (source) The first is a five-year history of physical silver prices…
As you can see, viewing silver’s recent move within the context of a longer-term time frame, alters our perception. The potential for additional volatility in the silver price is evident. However, the slope of the pattern, along with the overhead line of resistance, seems to indicate that the price of silver is well contained under $20 per ounce.
Finally, viewed within the context of a ten-year time frame, it would appear that silver’s recent rally is just a hiccup in its decade-long price decline since its peak in 2011…
In conclusion, not much has changed; silver’s potential for higher prices is quite limited.
With the winds of deflation howling ominously, it is more likely that the price of silver is headed lower.
As we have said before, it is prudent to own some silver coins (see my article on silver coin premiums) for exchange and barter against the possibility of a breakdown in the financial system and complete repudiation of the US dollar.
Other than that, your best bet for wealth preservation is gold; as long as you are not chasing the price.
(also see: Silver Loses Its Mettle)
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!
GOLD-SILVER RATIO
From Investopedia:
“Correlation is a statistic that measures the degree to which two variables move in relation to each other. Correlation measures association, but doesn’t show if x causes y or vice versa, or if the association is caused by a third–perhaps unseen–factor.”
In order for correlation to exist, there must be fundamentals that directly connect the two items being compared.
For example, there is a possible correlation between localized, bad weather and crop failures. But how do you predict the timing and extent, or the effects, to a degree that can be profitable?
And there certainly is a correlation between the price of labor and materials vs. the finished cost of building a new home. But there is no correlation between the price of labor and materials vs. the number of new housing starts.
We can find patterns and rhythm that might appear to be correlation (or inverse correlation) by plotting the price differential of any two items but it still does not imply correlation.
So, are gold and silver correlated?
QUESTION ABOUT SILVER COIN PREMIUMS
Disruptions to normal supply channels happen from time to time for various reasons. Also, people act irrationally at times.
Recently we saw a confluence of both events; and the results are attributable primarily to fear.
The fear was initiated when access to something desired, or needed, was inhibited (i.e., hindered, restrained, or prevented). At that moment, the actions of some individuals were indicative of expectations for the worst they could imagine.
SILVER CHARTS SAY $5
Even the most casual silver investor must be discouraged with what has happened to silver prices recently. But what about those who were/are super bullish? How do they feel?
As I read various reports and articles, I sense some back peddling on the more extreme predictions which were so prevalent just shortly more than a month ago. On the other hand, I also sense a reluctance to let go; to just admit they were wrong and move on.
Experiencing the reality of silver’s price decline of more than one-third in barely three weeks has left its mark in ways that cannot be ignored. It is ignored, though. And when it isn’t ignored, it is excused; or explained in terms that are supposed to make you feel better, but somehow make you feel worse.
Rather than rehash all of the depressing details verbally, I thought it might be a good idea to look at some silver charts which give us pictures of the damage that has been inflicted on a technical basis.
GOLD-SILVER RATIO TOPS 100
Recently, the gold-silver ratio topped 100. Nevertheless, it doesn’t seem to matter what the ratio is, or how high it goes. Those who prefer silver always seem to think it’s going to reverse “soon”.
It might; maybe significantly so, too. But it doesn’t mean a thing. There are no fundamental reasons for the ratio to move up or down at any given time.
Actually, there is no reason to track it, either. Except that those who love silver think it is correlated in some way with gold; its not. And that silver is cheap relative to gold (it is), so it must be a better buy (its not).
But what if there was a correlation; or inverse correlation? Shouldn’t we see something on a chart that would indicate such?
RE: SILVER LOSES ITS METTLE
Last week I talked about unrealistic expectations for the price of silver (see Silver Loses Its Mettle). My comments were centered on two specific factors: 1) silver’s primary role as an industrial commodity and 2) the fallacy of the gold-to-silver ratio.
Both of these items have their root in fundamentals, or lack of them.
In addition, I pointed out the fact that the price of silver has declined significantly in every single recession of the past fifty years.
Not surprisingly, the technical side appears to reinforce the lack of fundamental support for higher silver prices.
SILVER LOSES ITS METTLE
Actually, it is silver investors who might be losing their mettle. Coping well in the face of a fourteen percent decline in the vaunted white metal must be very difficult.
The size of that decline happens to be right in line with the major stock market indices, all of which (Dow, S&P, Nasdaq) lost similar percentage amounts this past week. No better, no worse for silver; but it is ironic.
We have been told over and over that silver is a hedge against that type of stock market action. Also, we’ve been told that silver would be more explosive that its well-respected brother, gold. It was – sort of. The correct word is implosive.
