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Cours Or & Argent

Gold And Silver; Looking At The Other Side Of The Coin

IMG Auteur
Publié le 23 décembre 2011
2181 mots - Temps de lecture : 5 - 8 minutes
( 4 votes, 4/5 ) , 3 commentaires
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Rubrique : Marchés

 

 

 

 

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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As always you have a good arguement for your point of view;however you did not mention that in May of 2010 that the Comex raised the margins for silver contracts five times! And at the same time some one sold ten million ozs of silver into the market. That sent the price of silver crashing down. The CMX have done everything to keep the price of silver down.
There is alot more going on that you or I well ever know. The lower the price of silver the greater the demand well be. In ten years time silver we be higher, how much higher I do not know, but it well be higher and the lower the price the more I will buy, and hold on to , because silver and gold well always be money to me and you or anyone else well not convice me other.
Keep writing and I well keep reading have a MERRY XMAS .
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Blow off tops? Now that's funny. I will get back with you on that if we are still able to use the dollar in a year or two. Give me a currency other than debt based that we can price gold and silver in. These Make Believe Markets are getting real old. But I must say I do enjoy going out everyday and trading worthless paper for real things. It's the new American Dream. Please be sure to wake me when its over. I will take ANY REAL Asset I can place in my hand before placing ANYTHING in the Paper / Electronic Ponzi Scheme. I must thank all those who have been keeping the Dream alive which has enabled me to accumulate the best insurance for my family and I to make it the best we can in the coming days, weeks, months & years (?).
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Congrats...this is a well written analysis and article.
One should not be totally married to a position.

Personally I sold half my physical silver at the blow off peak the day before Bin Laden met his demise.
Maybe I should have dumped the lot and may still do.
A close below the low of 14 Dec will see me out and I will be short the paper as it will likely hit $26 with a lot of pressure to go lower over time with $19 a real possibility!

As for gold i am not so sure...what is the point of flogging that off just to get paper in exchange?
Rather hold it and cover the downside with well managed short position...too easy!

Merry Xmas
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As always you have a good arguement for your point of view;however you did not mention that in May of 2010 that the Comex raised the margins for silver contracts five times! And at the same time some one sold ten million ozs of silver into the market. Th  Lire la suite
depourcq - 25/12/2011 à 17:02 GMT
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