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We can assert the trend is down because of lower lows and lower highs. What can be seen, at this point, is a very small range, so far, following a small range in May that closed poorly. What we know for certain is that the downtrend has not yet changed, so lower prices can be expected. We may hold an opinion that gold will ultimately be considerably higher in value, but there is no confirmation that price has begun to rally.
This simple model, which uses only four cycles and an exponential increase, indicates that a low in the silver price was expected approximately February – July 2013, and that the next high is expected approximately March – October 2014 in the $50 – $60 range. Further, the model suggests that a silver price of $90 – $110 is possible in the September 2015 – March 2016 time period. Do not depend solely on a model such as this; it is one of many tools.
Even though the weekly gold price looks weak, one should not take anything for granted. The daily gold price chart is more interesting, and it may be the best barometer for what to expect, moving forward. You can see the difference in the price distance. Are we getting a market clue that sellers are running out of effort?
We hold that the higher time frame charts are more controlling than lower time frames. The month of May had a smaller range on increased volume. What this says is that the buyers were meeting the effort of the sellers, preventing the range from extending lower. The close, about mid-range the month, confirms this observation. That would be the qualified good news.
Even with the sharp decline from last month, and the overall decline since September of 2011, there is still bullish spacing. It occurs when the current swing low is above the last swing high, from 2008. It tells us that buyers have been willing to buy into the market without waiting to see how the last swing high will be tested, an overall bullish condition.
How to look at the trend in the price of Silver?
People who have been following the gold and silver markets since the start of the bull market in 2001 know that both precious metals have had incredible price increases. In particular the silver price has gone from $4 to $49 at its peak in 2011. The price of silver has decreased significantly since then. It is currently trading 50% off its peak. There are some underlying economic drivers that need to be considered in order to understand this trend.
Why is the silver price going down while a lot of analysts write that the value of silver is rising?
First, the silver price is closely related to the gold price. It just reacts in a leveraged way.
Second, the precious metals are the perfect hedge against the destructive monetary policies of the central banks. The key issue at this moment is that deflationary forces are prevailing. That could sound strange because monetary policies are highly inflationary. Nothing is further from the truth anno 2013; the economy has been in deflation since 2008 but artificial inflation as an opposing force has been working simultaneously. The most likely outcome is first deflation then inflation. The price of gold and silver should decrease less than other prices during deflation, but much more during inflation.
That is the explanation for the disconnect between silver as an investable commodity and silver as a hedge against monetary destruction.
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Last update: May 2013