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The critical
juncture we suggested for silver last week has not changed. All the factors
we have looked at point to silver dropping in the medium term though the
shorter term (days to weeks) has scope for volatility. The RMA parameter
mentioned before has sounded an alarm but for now a low decibel one. Other
factors though are more shrill (refer to my blog for more details).
What I would like
to point out (again) is that any correction is not the end of the matter for
the gold and silver bull. The gold "M2 supply" chart we displayed
some weeks back paints the picture of a bull market that is not over yet.
This is an important chart that I think needs to be properly digested (gold
cycles in black, silver price in red).
The strong
implication of this chart is that gold and silver have a few years left to
run higher. In this remaining time frame I expect gold to challenge the 1980s
highs on an inflation adjusted basis. Gold made new nominal highs at $1032 in
March 2008 but that is well short of the inflation adjusted 1980 high of
about $2500. Silver is unlikely to challenge its inflation adjusted high of
$135 unless a mega-buyer like the Hunt brothers steps in again but the
nominal high of $52 is certainly an objective.
The timeframe for
this blow off is 2012 at the earliest which brings me to another issue. In
terms of Elliott Wave Analysis, I used to think that gold and silver would
both trace out a five part impulse wave from the beginning (1999 or 2001 for
gold) and we would witness a classic fifth wave climax in the distant future.
I don't think
that will happen now - the projected 2012 timeframe does not allow enough
time for it. If wave 1 was 1999/2001 to 2008 and this is a current wave 2
correction then two of the five waves have already occupied at least 8 years
of a possible 13+ year bull market. That does not leave much time for waves
3, 4 and 5. So my opinion is that the entire bull market will be a three wave
affair of which the second wave is nearing completion. Another confirmation
for that is that the 1964-1980 bull was a distinct three wave pattern. The
final third wave will outdo the first bullish wave and if we take the first
gold bull wave to be from $255 to $1032 and multiply it by a likely Fibonacci
1.618 extension then the final blow off third wave for gold could reach out
to about $2000 (i.e. $700 + ($1032-$255)*1.618) but it could of course go higher.
Applying the same
projections to silver brings us to a minimum projection of $35 but it could
spike briefly higher (i.e. $8.50 + ($21.34 - $4.50)*1.618)). By some
coincidence, we also note that $35 is also simply $21 multiplied by 1.618. I
would also point out that a projected line from the 2004, 2006 and 2008
silver highs extends out to the low $30s as a possible confirmation. Silver
and gold stocks will naturally leverage higher by a factor of 2:1 or more.
That all sounds
exciting for the precious metals investor but for the meantime investors need
to be prepared for a medium term wash out in preparation for the next and
final great buying opportunity.
The Silver
Analyst
http://silveranalyst.blogspot.com
Also by the
Silver Analyst
Further analysis and comment on the silver market
can be read in the subscriber-only Silver Analyst newsletter described at http://silveranalyst.blogspot.com where readers can obtain the first
issue free. Comments and questions are also invited via email to silveranalysis@yahoo.co.uk.
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