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We all know that gold has been in an 11 year bull
market. How about silver though? Can we reasonably conclude that silver has
been in any bull market whatsoever or can we say that silver quietly rode the
back of the gold bull market until it could no longer hide in 2009? Can we
say that silver has had a speculative bull run? Can we say that gold has had
its blow-off top? I think we need to really take a close look at the data and
try to come to some sort of understanding. This is what I try to do for
readers in this piece.
Gold had been on a relatively up-climb for the
better part of 5 years before it really started moving as demonstrated in the
price chart below:
Notice that the gold market really started to take
off on the completion of the long awaited reverse head and shoulder pattern
in 2009. This is roughly the same time we started to urge readers here to get
on the gold train. Since that right shoulder formed in the summer of 2009,
gold has increased from $950.00 per ounce to the top of $1,924 in May of this
year. That represented a 100%
increase in the price of gold in the last 2 years. It had
taken gold from 2000 to
2006 to double in price from the $300.00 starting point of
what has now been categorized as the greatest bull market in history.
Now let’s take a look at silver’s chart
since the year 2000.
As seen in the chart above, silver was pretty much
flat in the $5.00 an ounce range up until it too doubled in price
roughly the same time
that gold did in 2006 (from $5.00 to $10.00 an ounce. Both 2008-2009 dips are
noticeable on the above charts as are the ominous double top formations that
occurred in the spring of this year. In my understanding, double tops usually
are formed in conjunction with new highs, not at intermediate levels during a
price ascent. What we can glean from these charts then is that although
silver really didn’t take the mainstream spotlight until 2009-2010, it
was riding quietly along on gold’s coat-tails.
Now, before everyone starts going crazy filling my
inbox with hate mail as is so often the case whenever I post anything
negative about silver or gold, make sure you understand that for the longest
time, I was a major
proponent of buying silver and gold. In fact, I urged readers
to make a play on silver when the inverse head and shoulders pattern appeared on the silver
chart almost 1 year to the date of the big silver trashing of this past May.
I had always been bullish on the metal if you take the time and read my
historical pieces on both silver and gold you will clearly see this. In fact
I urged readers to go long in May of 2010 stating that I felt we were on the
verge of an historic breakout. The breakout exceeded my own expectations but
I didn’t complain so long as the price continued to rise. At the time I
made the call, the price of silver was trading at $18.75 an ounce.
From the year 2000, more or less the same time that investors will say that the gold bull market started
until I made that call on silver, the metal had risen 360%. It took between January of 2000 up until May of 2010 for the price of
silver to move 360%. A
period of 10 years. It had taken gold approximately the same time frame to
move 360%.
Simply using these two comparisons, we can
reasonably deduce that both metals have been in a bull market since the
year 2000 given their price increases. Most bull markets end with
blow-off tops. I alerted readers to this on August 23, 2011 when I urged readers to take a closer look at gold. I provided charts
to back up my theory and warned that in the 4 months leading up to August of
2011, gold had risen $400.00. A move that would
normally take years in the gold market had just transpired in 4 short
months.
Entering 2009, the price of gold was $801.50. By the
time it made it’s
first top of the now confirmed double top, it was trading at $1,923.70. An 125% move in 2.5 years.
Historical for gold given that it had previously taken 6 years for it to
double from much lower levels.
Entering 2010, silver was trading at $11.77 an
ounce. Since the start of 2009 it had moved to $49.82, a greater than 400%
move in less than 3 years
which had historically never been seen in silver.
The question that I have for readers to analyse and keep in mind is a simple one. Could the final
pushes that saw gold rise $400.00 in 4 months to reach the $1,923.70 high and
the move in silver’s price from the 3rd quarter of 2010 where it moved
over 100% have been the speculative blow-off
tops in both metals signalling
the end of their respective bull markets which, as we noted in the first two
charts above, essentially mirrored each other?
You’ve seen the 10 year charts above, now
focus on the 3 year charts illustrating my points:
The reason why I refer to it as a
“potential” blow-off top is simple. Let’s face it, before
2010, not a lot of people were really into the whole silver game. Let’s
be honest. Many retail investors were hardly interested in buying physical
silver and this is reflected in the number of coins minted by various mints.
The Royal Canadian Mint for example, saw sales of silver coins increase 30% to 25 million
ounces in 2011 alone. That matched a percentage increase in gold sales for
the year prior, 2010. 2011 gold sales were tracking 2010’s record
numbers. Remember too that bullion coins don’t find themselves going to
industrial usages. So if the Royal Canadian Mint alone produced 43 million
ounces of silver bullion coins in the last two years alone without factoring
what other mints around the world are producing, it is fair to say that there
is still a lot of silver out there. Enough to perhaps NOT support higher
prices?
Look at the US Silver Eagle mintage figures dating
back to 2000:
Bulk Uncirculated 1oz Bullion Coins
Eagle 2010
.......................... 34,662,500
Eagle 2009 .......................... 28,766,500
Eagle 2008 .......................... 20,583,000
Eagle 2007 .......................... 9,028,036
Eagle 2006 .......................... 10,676,522
Eagle 2005 .......................... 8,891,025
Eagle 2004 .......................... 8,882,754
Eagle 2003 .......................... 8,495,008
Eagle 2002 .......................... 10,539,026
Eagle 2001 .......................... 9,001,711
Eagle 2000 .......................... 9,239,132
Canada Silver Maple Bullion never saw more than 1
million coins minted between 1999-2006 and then saw 2.4 minted in 2006, 3.5
million in 2007 with a sharp increase as noted above (25 million ounces) in
2011. Those are significant increases, all consistent with investor or
“retail” demand. This is silver that will never see the
inside of a factory (not for industrial use).
When we look at it this way, we can see that there
was been a massive spike in investor demand which lends argument to
the speculative
aspect of the sales. It is not surprising then that with the massive spikes
in investor demand, we also saw spikes in the price of the underlying metal.
Couple this too with the massive indirect promotions
of the metal (silver especially) that we have seen from the likes of Mike
Maloney of goldsilver.com who has been touting $1500.00 silver for the last
few years (note he is a bullion dealer) and then the 2010 viral campaign
initiated by Max Keiser at the height of public anger of fiscal warfare
pleading for everyone to buy an ounce of silver to bankrupt JPMorgan Chase, a
campaign that started in late 2010 and not surprisingly brought in the
biggest year for silver since the Hunt brothers era. (As much as I despise
JPM’s tactics, they are far from being broke). The number of YouTube
videos wherein people were showing off their “silver stacks” went
nuts with Keiser’s campaign going absolutely viral over the web. It
seemed as though everywhere you turned, people were talking about buying
silver. Silver shops were sold out of the metal (which is no longer the case)
and there were waiting periods to obtain bullion orders (also no longer the
case). These my friends are all signs of speculative bubble tops.
Admittedly I missed it and perhaps was slightly
blinded by my own greed and arrogance when I called out Bob Moriarty of
321gold.com in a piece I wrote on May 22, 2011. In hindsight, he
was right, I was wrong and my own blinded greed perhaps sent
me over the edge when I wrote that. Only now, assessing the situation 6 months
later can I truly apologize for getting the May 2011 analysis wrong. But it
took me a while to get past my older ways of thinking perhaps because I had
been in the silver investing arena since the days of sub $10.00 silver. The
same way it may take those than only entered the silver investing space in
2010-2011 longer to realize that we may have seen the top in silver. Greed
usually keeps people invested in assets for far too long. I fit that category
back in May. I openly apologize to Bob Moriarty for calling him out and to my
readers for missing the parabolic move that is now obvious. Part of learning
is admitting one’s faults and I sure missed it back in May.
Silver, almost erasing significant 1 year gains (In
fact if you bought after February of 2011 you are now in the red) is not acting like a metal that is
simply in the midst of a correction but a metal that is in a
clearly defined bearish down-channel after years of being in an upward
channel. (See chart below). Don’t ignore that silver’s trend has
been down now for 6 months … this is atypical of just a
“correction”.
 
In conclusion, there was no doubt a bull market in
gold. One can argue, despite the fact that silver has only been on the radar
screen for the better part of 3 years, that silver too was involved in
gold’s bull market given the price moves noted in the first two charts.
Both metals appeared to make a double top. Silver made what we can now call a
first top in May of this year after what I can now label a parabolic move,
with the second top coming in August. Gold’s top’s are tighter with both appearing in
August. Since then, both metals have been on a clearly visible downslope and
if this truly is just a “correction” then it surely one of the
longest drawn out corrections I have ever witnessed.
However, if we subscribe to the notion that bull
markets usually end with parabolic blow-offs, then it would serve investors
wise to consider the $400 move from June to August of this year in gold, and
the move from $26.00 to $49.82 between late February and early May earlier
this year as potential blow-off tops. In hindsight, given the price
performances of both metals over the course of the prior 10 years, could
those moves have signalled the end?
I am reluctant to call any permanent tops or the end
of speculative phases in markets but I also want to ensure that investors
consider all the evidence before making any decisions. I’m man enough
to admit my May 2011 rant was incorrect given what I now see but admittedly
it took me a few months to grasp it. I don’t want readers to wait too
long before making their own minds up.
If I may offer some more advice; Don’t only
get your information from the likes of Sinclair, King News, GATA or Schiff.
This is not a slam
on those outlets or fine people that provide commentary or them. They are all
very smart people. However, as you very well know, they have always been
precious metals bulls so you pretty much know what to expect before you
even click on their links. I have often quoted their material
here…it is good material. However,
proper research involves looking at the other side of the argument and
I want to ensure that readers do some homework and add some other
perspectives to their daily readings. We all know that the United States has
gone through two massive QE phases. Yet, wasn’t that supposed to be a
catalyst for the metals … the charts will tell you otherwise. This is
what I want readers to turn their attention to. Just like that Canadian
Silver Maple or American Eagle you may own, the gold and silver argument also
has two sides to it. Become familiar with the other side. Don’t dismiss
the bearish arguments. Only by properly analyzing both scenarios can you make
an educated decision on your investment strategy.
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