Silver Prices - The Big Picture

By: GE Christenson | Thu, Feb 7, 2013
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Silver coin

Question: What do May 2004, January 2005, August 2005, June 2006, October 2008, February 2010, September 2011, December 2011, June 2012, and December 2012 have in common?

Answer: They represented significant price lows in silver, AND those lows were confirmed by the weekly stochastic (14,3,3) indicator and the weekly TDI Trade Signal Line (13,5) as shown in the following chart of silver prices since 2004. Note the red circles showing price lows and corresponding turns in the stochastic and TDI indicators from oversold levels. (Information on the stochastic and TDI are here and here.)

Silver comex
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The ten year chart of silver prices is plotted on a logarithmic scale and shows a highly volatile exponential increase in prices over that ten year period.Note the higher trend line extends to approximately $100 by the end of 2013. Prediction - Certainly Not! Possibility - Yes!

The highs in 2004, 2006, 2008, and 2011 were at or above that trend line. A price of $15 in 2006 was just as extreme as a nearly $50 price in 2011 and a possible $100 price within the next two years. Will silver prices spike that high? Time will tell, but before you dismiss such a price as unlikely, consider the following:

So is $100 silver possible? The better question is "How soon will we see $100 silver?"


Details of the Graphical Analysis


Technical Analysis - General Comments

As I understand it, there are two main objections to technical analysis. They are, in simple terms:

My response: I think most markets are manipulated or at least managed to some extent. I think the (paper) silver market has experienced short term managed selloffs that have nothing to do with supply and demand in the physical market. (When elephants fight, the grass gets trampled.) The manipulation is short term and makes technical analysis nearly useless during those short term manipulative episodes. But, in the longer term, in my opinion, the manipulation is just "noise" and technical analysis is valuable.

As to the suggestion that technical analysis does not work, I think that is obviously false. The data indicates it does assist in determining the probability that a market will rise or fall. I use it and find value in it.


Conclusion

Approximately once per year the weekly stochastic and weekly TDI indicators have given a "buy-signal" in the silver market. The most profitable buy signals occurred when the TDI was particularly low and silver had just finished a large percentage correction, such as in late 2008 and June 2012. Those indicators have given another weekly "buy-signal" in early January of 2013.

Within the trend channel that stretches back to 2005 there is room for silver to blast higher into the neighborhood of $100 per ounce within the next year or so. It may not rally that high in 2013, but new highs above $50 seem quite likely, based on silver's price history, the current "buy-signal," and the financial traumas in the world that are likely to cause additional "money printing" and consumer price inflation.

These financial traumas will create anxiety about the safety and value of unbacked paper money that is being "printed" at an accelerating pace. Gold and silver prices will benefit from that "money printing" and from the resulting anxiety over the loss of purchasing power.

ReadTen Steps to SafetyandWhy Buy Silver?

Now, look at the above graph of silver again and ask yourself:

 


 

GE Christenson

Author: GE Christenson

GE Christenson aka Deviant Investor
www.deviantinvestor.com

GE Christenson

I am a retired accountant and business manager who has 30 years of experience studying markets, investing, and trading futures and stocks. I have made and lost money during my investing career, and those successes and losses have taught me about timing markets, risk management, government created inflation, and market crashes. I currently invest for the long term, and I swing trade (in a trade from one to four weeks) stocks and ETFs using both fundamental and technical analysis. I offer opinions and commentary, but not investment advice.

Years ago I did graduate work in physics (all but dissertation) so I strongly believe in analysis, objective facts, and rational decisions based on hard data. I currently live in Texas with my wife. Previously, I spent 20 years in Barrow, Alaska, the northernmost community in the United States, 330 miles north of the Arctic Circle.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/