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Back in
April 2007, I wrote about the three stages that appear in every bull market,
and more to the point, that gold was
approaching the end of stage one.
Gold back then was still trading around $690, and therefore well below its
then record high of $850 reached in January 1980. My view was that
“gold looks ready to make a new all-time high. When that happens,
stage two begins. There will not yet be widespread excitement about gold in
the next stage, because that won't occur until stage three. But when gold
makes a new record high, and particularly after it breaks into a 4-digit
price, people will begin paying attention.”
I wrote a
follow-up article in November 2009 entitled Welcome to Stage Two of Gold's
Bull Market, just two months after gold broke
above $1,000. Focusing on the change in prevailing sentiment, I noted
how differently gold was being treated. "During the first stage
of a bull market, the media and most investors alike focus on past issues,
rather than future potential. Over the past decade one consequently
heard all the reasons not to own the gold…But there is a notable
difference in this stage compared to stage one. Look how many people are
writing and talking about gold. Gold has moved from apathy and neglect
– stage one characteristics – to growing attention. But
importantly, instead of embracing gold and analyzing it to determine relative
value, today’s attention is one of widespread disbelief and skepticism
that gold can climb higher. These are exactly the responses one should
expect to emanate from stage two." I concluded by noting that
at some unpredictable point in the future, gold will enter stage three "when
gold no longer is relatively good value."
I did not
make any mention of silver in the above two articles. It too has three
stages, but silver is still mired in stage one, which began in February 1991
after silver had collapsed to $3.50. It was an
astounding 93% decline from its January 1980 peak of $50. But as we can
see on the following chart, $3.50 was silver’s low, and its price has
been rising ever since.
This chart
shows a massive accumulation pattern, marked by the green lines. This
pattern is a story of strong hands and weak hands, specifically, of silver
moving to the former from the latter.
From its
$50 high in January 1980 to its $3.50 low in February 1991, the weak hands
were shaken out. At that point, the accumulation by strong hands
– who were buying because the recognized that silver was an exceptional
bargain – became the dominant force. Their buying power was
stronger than the selling pressure of the weak hands, and the price of silver
responded by starting to climb. It was classic stage one action, but
here’s the important point.
Silver is
still in stage one. It won’t advance into stage two until $50 is
exceeded, just like gold did not enter stage two until its previous high of
$850 was hurdled.
I expect
that silver will exceed $50 this year, which is a point of view I first
mentioned in my outlook for 2010.
Admittedly,
I was a little early with my forecast about when gold would enter stage
two. So perhaps I will again be early by forecasting that silver will
enter stage two of its bull market this year. Regardless of the
accuracy of my timing, one thing is clear. Because it is still in stage one, silver remains good value.
James
Turk
All data and quotes sourced from Reuters.
Published by the Free Gold Money Report.
Copyright © 2010. All rights reserved.
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