Quite a few charts have been focusing on the extreme price action from the markets in recent days. Today I have done two, with the first one being Gold's sharp decline below the 200 day moving average. So now I thought I would put forward none other than one of the worst performing asset class since the May 2011 top... Silver.
This precious metal, which seems to be more rare than Gold these days, is currently down over 13% for the week, over 18% for the month, almost 30% down for the quarter and almost 45% down since the peak in late April of this year. We now seem to be in another liquidation phase (chart above), which could be the third and final one. I would also like to add that Silver is now 3 standard deviations away from its 50 day moving average. This rare event only happened a handful of times in the last half a decade or even longer (second chart below). The dates circled in red include middle of 2006, middle of 2007, late 2008, early 2010, September 2011 and currently as of now.
Every single one of those events happened to be an intermediate bottom, apart from the famous Lehman Brothers crash in 2008. Three of the five signals were major bottoms, as huge gains followed afterwards. As already mentioned 2008 was a dud signal and would have cost you a high draw-down have you held the whole way down, but the bull market would have saved you in the end as the secular theme is still pointing here for precious metals. Finally, the recent signal in September would have made you a decent return for a trade or a break even as a worst case scenario. I assume that this current signal will be one of the more major ones, where one's investment will be followed by some serious gains in the future.
After all, this is now the second most oversold reading in over a decade! The question is how far lower will the price could go as investors overact in a panic? Judging by the last two phases (first chart above), which corrected by 30% to 40% from top to bottom, we could drop anywhere from another 10% to 20% from here... if we were to follow similar patterns. I am not so sure about that, so on the other hand, we could already be oversold and bottoming right around here. Having said that, I guess we will have to wait and see how things turn out in the up and coming trading sessions. The best thing is to wait for the panic and liquidation to end, before stepping in...
On a final note, it looks like majority who voted for Silver to reach $26 before year end might just get their prediction right if the price goes lower from here (Article: Poll: Up Or Down For Silver?). We are currently only $2 away from that outcome... Whenever the selling ends, I recommend to buy some Silver or add to your positions - I know I will!
US$18 to US$22 likely to be the grand bottom before turn up.
ReplyDeleteI heard that from so many people, that it is not funny. And if Silver bottoms at $26 and goes to $100 you will miss out big time... *cheeky smile*
ReplyDeleteTiho, that's true but isn't that kind of thinking that puts small investors like us, pumping money while the big and smart hedge funds dump their positions? First they create some kind of a super high target that everyone believes in, then we have parabola, then everyone is doing some math about the next huge high ...
ReplyDeleteI also believe in the $100/oz silver, but don't you think that this time, it will come slower ... and the trend won't reverse just like that and never go down or consolidate for longer period ???
What I read on most websites is that people continue to buy gold and silver as they don't trust the corrections. I know that DSI and other sentiment readings are negative but I don't see such pessimism nowhere on the comments on different websites. Everyone is trying to pick the bottom ??? Isn't that a recipe for continuing long money flowing to be taken by the real smart?
Also what worries me is that most super smart money like Jim Rogers are waiting for a much lower entry points, like $1400, $1200, $900oz/gold .... if that is to be true, where silver will be ? And if Jim is not buying , who is ??? me and you ? Zerohedge readers?
Just some thoughts and my 2 cents ... I still resist buying, I might regret, but I hope I'm right.
The same as silver, we have a target for gold that all people are thinking about and seeing on the charts : $2000oz/gold ... $3000oz/gold ... is that so easy ? Is investing so simple ? Will this decade also be as easy as from 2000-2010 ? Buy gold and do nothing else (be smart even without knowing something more than others) ? Am I right that 99% of all traders know that there will be QE, we must buy all the bottoms always ? How do we react if new recession comes and the USD go parabolic no matter how much Ben prints?
ReplyDeleteI can assure you that no matter the much talk about USD collapse with the 1-2 trillion that Ben printed, if Ben don't print anymore, the USD will become the best currency in the world ...
so isn't it wrong that all people overreact ?
One more thing for thought, the US economy is getting a bit stronger compared to Europe and Japan, so don't even QE soon, if there is no QE, what will make the USD weaker and all assets stronger? Everyone is waiting for Europe to let ECB print, and if they the EUR will go up (but for how long? Until it is realized that ECB printing will be inflationary and will bring Euro down - USD up and assets down )
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ReplyDeleteFirst of all, Illi it is very good to hear from you. I hope you are well.
ReplyDeleteSecond, there is no smart money hedge funds out there dumping assets to "us" buyers. Hedge funds are getting killed, so are mutual funds. They are both experiencing some of the worst performing years in decades. Majority are down, almost everyone is down, unless you are Hugh Hendry and all you do is short China with CDS's.
Third, Silver will go so so so so high, even I will be surprised. It will go so high, and than I will sell and then it will go up three or four times that. I think Silver will take out $50 record from 1980. It will than take out the triple digit level for the first time and than it will also make a new inflation adjusted high which would mean $140/$150. After that it will still go higher and even I will be surprised. it will be a huge bubble by than!
Therefore, buying at $22 or $24 or $26 or $28.534 will not really matter too much in the grand scheme of things. In 1987 stocks crashed by 40% like Silver has in 2008 and 2011. By 1999, when you look at the Nasdaq chart, you cannot even see the crash of 1987. It is just a small little blip on the screen, like an ant. Well... 2011 will look so small in five to ten years, that people will be saying all I had to do was buy and hold!
Finally, investing is not a fast paced trading game. You said it will be "much slower". Of course it will be. Investing is not a get rich quick scheme, it is a long term strategy to protect and grow your capital. And everyone has their own strategy. I have large sums of money coming into my fund every week, every month. Cash in Australia pays 5% p.a. which is "ok", especially during conditions like we have in the last six months or so.
But for me, I eventually put that money to work every time an asset like Silver crashes another 10% or 20% or 30% or even 40% like it has since May 2011. It is much better to participate in the long term secular bull market by buying commodities, than it is to sit in cash or a long period of years or trade in and out and than... loose your position in the bull market!
Does it make a difference whether you buy a silver ETF such as SLV or do you have to buy physical?
ReplyDeleteI openly admit not knowing what to do re all this talk of the SLV ETF not having physical silver.
I own futures, not physical. I'm not betting on the end of the world, or total depression are collapse or hyperinflation or any of those blown swans. I just think it is useful to have some physical yourself as an insurance policy incase the world does end on any given Sunday.
ReplyDeleteHowever, for the sake of nesting, I think people will create a bubble in Gold and Silver, so I'm interested in buying it because others are interested in it and will push it higher. I'll sell my Gold and Silver once it goes into a mania stage later in the decade.
p.s. if you are more bearish than me and think your Gold or Silver will be confiscated by the government or that there will be a run on the futures COMEX market or any of e other gold bug worries... you cold invest into the Sprott Gold or Silver etf. The guy holds all physical Gold and Silver in a three party premises in Canada (not US), but e etf is still listed on the NYSE.
ReplyDeleteI am just worried that after such a horrendous drop over the last 6 months, the optimism towards silver is still very high.
ReplyDeleteThe Internet is flooded with trip digit hyperinflationary price targets, "peak silver" seems to be a fact known by everyone and his dog, many gurus are calling this correction the last buying opportunity, everyone agrees on some level that sooner or later all governments around the world will embark on massive money printing and currencies around the world will become confetti, and nearly all experts are bashing silver ETFs and advising people to hold physical silver in their home.
Barely a year ago, silver has not entered the general public's psyche. Today, "you must have some physical silver to protect yourself".
Something is seriously wrong here ...
All parabolic moves must be at least completely retraced in the subsequent correction/crash. Look at cotton in 2011, oil in 2008, wheat in 2008, ... Novices often die at the peak, but gurus often die half-way downhill. :)
ReplyDeleteWill silver really "go so so so so high"? My impression is that arguments for exorbitantly high silver prices come mainly from silver bullion/ETF suppliers. If they really believe in they thesis, why selling their silver coins/bullion to us starry-eyed dumb people? Are they truly prophetic about the future and angelic towards humanity? If so, where are these people when silver was 5 dollars?
ReplyDeleteWe have to really think through it before jumping into "the grand scheme of things", because it all sounds too familiar to Nasdaq in 2000, China in 2007, peak Oil in 2008, and the cotton bubble not so long ago.
Tiho, I am really confused here. From what I see among the emails of my Google alert on a neutral search term "silver price", I feel silver price is not climbing a wall of worry as proclaimed by Peter Schiff, but rather sliding down the slope of hope. Anyone has the same feeling?
ReplyDeleteI'll tell you what, for anyone who thinks Gold and Silver are in a bubble and sliding the slope of hope and reaching the whole blow off top similar to Oil should not buy any Gold and Silver. That way you will not lose any money. On top of that, you might want to go and short it since you are so sure majority of the gurus will die half way down the hill.
ReplyDeleteI know certain aquitances which are of Jewish decant and they hold ahold and Slver irrelevant of the price and the year. They have done so in 2001 and they have done so in 2011 and they will do so in 2025. That is there tradition.
I love how people resort to the mystique of Jewish investment prowess to reconcile their cognitive dissonance after a bubble burst. :)
ReplyDeleteThe reason I put that point forward, is not to say it will go higher or lower. It is to say that price of Gold and Silver does not go to $0 like equities, bonds and currencies could. Therefore, certain people only invest in precious metals. On the other hand, I believe Silver ill go so so so so so so so much higher than today and I have my money where my opinion and conviction is regardless of what others do.
ReplyDeleteI also states above, if you think the bull market is precious metals is over, do not buy. No one is holding a gun to your head and forcing it to buy. And also, there is no point in trying to convince or help some people out. They just refuse to understand how markets work. That is why 1% of the world is wealthy and 99% are poor, but great at arguing academics points. So having said all that, I am not sure of which bubble you are talking about?
Treasury bond bubble is the only one around that is left, but that one hasn't burst yet. We have been waiting for years now. It is a 30 year bull market after all so it has to burst eventually...
As for Silver, yes it will be in a bubble one day, but that is far far away. We will have to go higher than $150 first. Maybe even much higher than that... I do not know.
So I guess those Jewish friends of my will be very rich and you? =)
My main concern about silver is that I think it will plunge, just like 2008/09, if there is a big stock market crash. With the global economy in a mess, the threat of a Euro country being kicked out of the Euro or defaulting, etc, and China looking as if it is about to topple... then I expect that one of the above, or similar, will cause the global markets to tank.
ReplyDeleteI think silver will go down as well as gold.
The question then is how far down it will go before it is a buying opportunity - all depends on high you think it will eventually go to I guess?
Yeah I agree that Europe is a total disaster. Defaults will come without a doubt. If you are Italy and you rate are at 7% on your debt an your economy grows at -1.0% and you have 2.5 trillion dollars of debt (120% to GDP), basic maths states you are finished and you will default. However, politicians can alter the way the final outcome occurs so the question is will they print before defaults or after defaults?
ReplyDeleteIf they print before, Gold & Silver will rise. If they print after, Gold and Silver will plunge by a huge number (aka 2008) and than recover.