Gold And Silver Charts

Monday was a bad day for the bulls in the gold and silver market.  Gold saw a day of extreme volatility, a daily move of 3% or more from previous day’s close (-3.35%), its 55^th -3% Day since December 2000.  Silver was only down 1.02%, so it was far from making a 5% day.  I use a 5% daily threshold for silver’s days of extreme volatility as it is the more volatile metal, but like gold’s 3% daily volatility, a 5% daily move (up or down) in the price of silver is an unusual market event that should catch our attention.

Looking at the Silver to Gold Ratio (SGR), the number of ounces of silver a single ounce of gold can purchase, it’s still between 70 and 80 as it has been since the end of September 2014.  As is obvious in the chart below, it’s unusual seeing the SGR in such a tight range (69.17 to 76.76) for a ten month period of time.  Since 1969 the ratio likes to either move up or down from month to month, but the last ten months have been very different.  Looking at the SGR over the decades, during bear markets in gold and silver the SGR moves to higher values, with bull markets sending the SGR to lower values.  Seeing the SGR for the past year stuck between 70 & 80 tells me that although the bulls may be battered, the bears are having problems too if after ten months they can’t get the SGR to move above 80.  Exactly what that problem is I don’t know.  I suspect the bears are finding the real resistance in having everything going their way is in the silver market.

Let’s move on to gold’s step sum charts.  As usual; the price trend (Blue Plot) was the superior predictor of future price movements than market sentiment as measured by the step sum’s trend (Red Plot).  So seeing the decline in the price of gold ignoring the range bound step sum plot from 2011 to 2014 proved that the bears saw the future more accurately than did the stubborn bulls, which after four years have yet to capitulate.  But since March 2014 gold’s step sum has seen more down days than up; isn’t that a sign of capitulation?  Maybe, but note what the step sum plot did from February to September 2011, it shot up like a rocket during a buying panic.  I can see the selling panic in the price trend, but so far I don’t see the bulls running up the white flag of surrender with a proper collapse in the step sum.

Looking at gold’s step sum chart from 1998 (below) is actually a better view of the market and the stubborn market sentiment of the bulls.  We’re actually in a 47 month long bear box, where the bears have kicked the heck out of the bulls for the past four years and yet the bulls have refused to say uncle.  I don’t know exactly how this bear box is going to be resolved.  Will the step sum see a proper collapse as the price of gold makes a breath-taking plunge to its ultimate bottom of the move before the bull market is resumed, or will the price of gold rise up, taking the step sum with it thus invalidating this prolonged bear box – I haven’t a clue!  But I expect either way we’ll see market history being made that will be long remembered.

Here is silver’s step sum chart.  After a 70% decline in the price of silver its step sum has so far refused to collapse in a 50 month bear box.

But that’s typical for silver.  Silver’s step sum refused to collapse during its 1980-2001 (21 year 90%) bear market too.  Keep in mind that silver is also an industrial metal; that makes demand for silver price insensitive to the large industrial users who buy it by the ton, but use it by the gram for its unique electrical, chemical, medical, or reflective properties that are unique to silver.   For an automobile manufacturer who uses a quarter an ounce of silver in every car they sell, what does it matter if silver is going for $15 or $150 an ounce when they sell their cars for $30,000 apiece?   No matter how far the price of silver goes down on a bad day, industrial users will be back the next day buying silver and that is why silver’s step sum hasn’t seen a proper collapse since 1969.

But in 2015 silver’s unique properties have also made it rarer than gold as gold is always recycled, and returned to the market, while most silver used in manufacturing is never recycled and so lost forever to the market.  If the SGR can’t currently get above 80, maybe decades of tossing billions of ounces of silver into the world’s landfills are finally catching up with the bears in the precious metals market.

Let’s look at gold’s Bear’s Eye View (BEV) chart.  The current correction is getting nasty.  It appears the bears are trying to make gold’s second attempt to find a bottom fail.  But if they’re successful in doing so it’s only because they cheat by manipulating the paper futures markets with promises to deliver tons of gold for future delivery that everyone, including the “market regulators” at the CFTC knows they don’t have and can never get.  Government “regulation” in America’s financial markets has become a bad joke. 

It’s been four years since gold’s last BEV Zero (last all-time high), but no matter as market forces can be denied for only so long.  It’s just a matter of time before we see gold making a new BEV Zero in this chart, the question is when?  I don’t know, but I suspect we are much closer to the end of this 40% bull-market correction than its beginning!

Silver’s current correction (E) is horrendous, 420 trading days longer and 15% deeper than the horrible credit-crisis correction (D).  But I still have to chuckle a bit when I notice that currently, at the bottom of a 70% correction the price of silver, it’s still about $5 higher that it was at the bottom of the credit crisis market. 

Go back and take a quick look at silver’s dollar plot in its step sum chart above, the run up in price silver saw from October 2008 to April 2011 was amazing;  468% in only two and a half years!  And then also notice that silver’s current last all-time high is still from January 1980.  What today in 2015 is still as cheap as it was in 1980?  Cloths aren’t, neither are cars or vegetables, yet today silver, a metal that is essential for modern manufacturing is currently 70% below its last all-time high price from four decades ago?  Wow, what’s with that!  That isn’t true for copper or gold or anything else!  Silver has to be most mispriced commodity / investment on the earth!

If you think of market risk as the potential for losing money, then in the BEV chart below we see that at no time since 2001 has there been less risk in purchasing silver.  Silver’s current difficulties won’t last forever, nor will its current low price.   But one has to be patient because the “policy makers” who hate everything to do with gold and silver aren’t going to make investing in silver any more enjoyable than they have to.

These are trying times for us gold and silver bulls, but the world’s central banks are currently fouling their money supply with monumental-monetary inflation that will someday be a source of woe to even the rich and famous.  A historic crash in the paper financial markets is already baked in the cake.  Purchasing assets that have no counterparty risks, like real gold and silver seems the logical investment at a time like this.  But as is typical at historic market bottoms, don’t expect anyone in the media to ring a bell to tell you when to buy.

[email protected]