In last
week's Metals, Mining, and Money from Casey Research, Jeff Clark estimated
that given the magnitude of the correction that started last September, it
may take until May 2012 for gold to reach a new high. Let's take a look at
how long it may take for silver to rebound.
It's a commonly known fact that silver is more volatile than gold. Already
in this decade, silver has risen by a factor of 12 from its ten-year low
($48.70 vs. $4.07), while gold has seen about a sevenfold climb ($255.95 vs.
$1,895).
This volatility - as you'll see in a minute - holds for corrections as well.
On average, silver's retreats have been deeper and longer than gold's. The
three big gold corrections we looked at last week averaged 22.8%. Take a look
at the three biggest for silver, along with how long it's taken to recover
and establish new highs.
The three biggest silver corrections in the current bull market average to
42.1%.
Our recent correction is the second biggest on record since 2001, but what
really makes it stand out is the duration. The 2004 and 2006 declines took
only five and four weeks respectively to reach their low points. And it was
31 weeks after the crash of 2008 that silver bottomed. Our current decline,
measured from the peak reached on April 28, 2011 to its December 29, 2011
low, spans 35 weeks... quite the determined downtrend.
It also takes silver longer to recover than gold: gold's three biggest
corrections required an average of 57 weeks and 6 days to regain their old
highs, while it's taken silver's three biggest falls an average of 98 weeks
and 4 days to catch up.
So how long will it take to recover from the 2011 slump? We don't know the
future, of course, but the current correction is close to the average of the
three in the chart, so let's apply the average recovery time to our current
situation. The average 42.1% correction took 98 weeks and 4 days to recover;
using the same ratio, a 46.3% correction would take 108 weeks and 3 days.
Counting from the previous peak of April 28, 2011, we wouldn't break the
$48.70 high until May 26, 2013 (based on London PM Fix prices).
It shouldn't come as a surprise that silver will take longer to return to
its old high than what we found with gold in last week's article. Why? Half
of silver's use is industrial, so a weak economy can drag down its demand. We
certainly saw that in 2008.
And an exact date is pure conjecture, of course, and ignores fundamental
factors that directly influence the price. 2011 is not 2008. In fact, we've
already seen an interesting shift in investment activity in both gold and
silver markets. The Silver Institute pointed out in a recent market
report that "investor activity" was the biggest contributing factor
to both last April's rally as well as September's selloff. Meanwhile, demand
for physical metal has not only held firm but was projected by GFMS to reach
a new record high in 2011.
Investment demand is rooted in the metal's monetary characteristics. It's
not a stretch to say that we expect silver to regain its currency appeal
soon, given the amount of worldwide fiat currency destruction. This will be
perhaps the strongest catalyst for prices going forward. We wouldn't want to
be without any silver.
If there's anything that sticks out from this bird's-eye view of the past
ten years of data, it's that corrections are normal. And just as obvious is
the fact that corrections end.
As with gold, the silver bull market is far from over, regardless of any
weakness we may see in the near term. Don't be the impatient investor who
gives up too early. And trying to time the market for a short-term profit
shouldn't be the strategy in the midst of a long-term bull market. Instead,
keep silver's fundamentals in mind: its industrial uses are growing and, like
gold, silver is money.
That said, we believe that the window for buying silver at $30 won't be
open for too long. The profit you someday realize from silver will be made
buying now, when the price is low.
