Silver Update

Roland Watson
Posted Oct 19, 2009

Silver is pushing $18, gold has made new all time nominal highs and it all appears to be looking good for The Great Leap Forward. Buyers are piling in fearful of having to buy at higher prices and gold and silver look moon bound. Meanwhile I am now all cash in my trading account and have sold silver bullion as well (for my trading account of course). Yet I believe silver will make new highs and approach the highs not seen since January 1980. Am I insane? No, just bearish medium term and bullish long term. The graph below explains my shorter term fears.

(Click on image to enlarge)

The basic question is how long do silver price runs last? Do they go on forever? Obviously not. The chart shows that since March 2003 where we place the start of this 10+ year bull market, there have been six good price runs in silver. They lasted for a range of 7 to 12 months before either spectacularly crashing or entering a grinding period of consolidation. The average period was 8.8 months and this price run since late October 2008 has lasted 11 months.

Call it a hunch but going by the historical price hints, this price run is very long in the tooth and either due to A) crash spectacularly or B) enter a grinding period of consolidation. By some strange coincidence, what could happen next is the subject of our latest newsletter.

Don’t be soothed by people talking about “healthy corrections”. Silver is a volatile commodity that unlike gold blows hot and cold – very hot and cold. I don’t think there will be anything healthy about the next few months (unless you think electric shock therapy is a healthy medical procedure).

Now you might send me an all capitals email saying “this time it is different”. Maybe, but I wouldn’t bet against recent history. When the price crash/grind ends, sell your mother for silver and silver stocks. Okay, maybe not that extreme but you get the point?

Further analysis of silver can be had by going to our silver blog at http://silveranalyst.blogspot.com where readers can obtain a free issue of The Silver Analyst and learn about subscription details. Comments and questions are also invited via email to silveranalysis@yahoo.co.uk.

Roland Watson
email: silveranalysis@yahoo.co.uk.

321gold Ltd