Silver Update

Last week I mentioned how silver was underperforming gold at this present time but demonstrated that this was something to be expected. Silver lags gold at the beginning of a bull leg up but as if to compensate this seeming conundrum, silver will assuredly be outperforming gold at the end of the same bull leg!

But what of a further question that may be asked? The question is simple yet potentially vexing to silver investors. Gold has now closed above $800 for the first time since January 17th 1980. One may naturally ask what the price of silver was at that time and the answer would be $40.

But of course, silver is not at $40, it is just under $15 so what gives? If silver is going to emulate 1980 then it has some serious shifting to do in the next 10 months or so before this particular bull wave ends. Can silver go from $15 to $40 in a matter of months? Well it is possible since the same feat was achieved during the "Hunt Spike" in a mere matter of four months. So nothing can be excluded but neither is it assured. There can be nothing worse than expecting $40 silver only to see it hit $39 and then drop back to $15.

But again why is silver not at $40? The answer is because we are not at the same point in the commodity super cycle that we were back in 1980. Truth be told, this is more like 1960 than 1980. This commodity super cycle or the Kondratyev inflationary upwave as others call it has a long way to go yet. Silver will reach $40 and assuredly go much higher in the years ahead but for now we take each bull leg at a time.

So with that in mind, we briefly look at something we need to see if we believe this is a real silver bull market. That is silver rising in various international currencies. The charts below show the silver bull market in six major world currencies. Despite their fiat vagaries and rising values against the US Dollar, silver is in a bull market in each and every one of them. All we await now is the final push onto new highs.

Why is it that silver will rise in a currency that is itself rising in value against the US Dollar? The answer is relative supply and demand. When investors shift their dollars into euros, the European banks just turn on the electronic spigots to create these nebulous euros.

Not so with silver or gold for that matter. When investors demand silver as a dollar hedge, you can't just press a key on your computer and a 1000 oz bar of silver appears out of the ether. No sir, it first has to be discovered, dug out deep from the ground, refined to 99.9% purity and then poured into investment grade bars which are shipped to warehouses. This is obviously not a trivial matter and hence firmly puts a supply bottleneck on silver availability compared to a bond denominated in euros. The result is a faster rising price of silver.

The only curiosity about two of these silver graphs is silver in Yens and Canadian dollars. While the other currencies made their last major highs back in April-May 2006, silver went onto make new highs in the Yen and the Loonie 10 months later in February this year. That is an interesting one for Elliott Wave analysts I suggest but for now we need only point out that the new highs were not confirmed by the other currencies and hence were false flags.

So we await the international bull market in silver to resume very soon as old highs are taken out across the globe. On our charts the Australian and Canadian dollars seem furthest behind in catching up. If you are ultra-cautious you may wait for these laggards to catch up. As for me, I'm not waiting, gold is making new highs and silver will surely follow!

Further analysis using our various indicators and more can be had by going to our silver blog at http://silveranalyst.blogspot.com where readers can obtain the first issue of The Silver Analyst free and learn about subscription details. Comments and questions are also invited via email to [email protected]