• 288 days Will The ECB Continue To Hike Rates?
  • 288 days Forbes: Aramco Remains Largest Company In The Middle East
  • 290 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 690 days Could Crypto Overtake Traditional Investment?
  • 695 days Americans Still Quitting Jobs At Record Pace
  • 697 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 700 days Is The Dollar Too Strong?
  • 700 days Big Tech Disappoints Investors on Earnings Calls
  • 701 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 703 days China Is Quietly Trying To Distance Itself From Russia
  • 703 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 707 days Crypto Investors Won Big In 2021
  • 707 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 708 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 710 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 711 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 714 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 715 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 715 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 717 days Are NFTs About To Take Over Gaming?
Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

Tesla Struggles To Compete In European Market

Tesla Struggles To Compete In European Market

Tesla continues to catch the…

How Millennials Are Reshaping Real Estate

How Millennials Are Reshaping Real Estate

The real estate market is…

  1. Home
  2. Markets
  3. Other

Market Tops And Bottoms In Gold and Silver

I would like to tell you about a proprietary indicator that I use in the precious metals market. Take a look at the chart below which shows the indicator against the price of silver (in green) since 1967.

Long-Term Silver Chart
Larger Image

The graph shows the leverage that silver achieved over gold over a rolling four-year basis. I have addressed the subject of the gold-silver leverage ratio in previous articles, but this indicator uses a different approach to calculating the relationship between gold and silver prices. Note that this chart peaks on various major occasions in the last 48 years.

The first of those peaks is near the top of the 1968 "Johnson" spike when silver doubled in price after the USA government went off silver coinage. The second is near the well-known 1980 "Hunt" spike. The third is near the 1998 "Buffett" spike when Warren Buffett purchased nearly 130 million ounces of silver. Finally, two more peaks occur near the February 2007 peak and the April 2011 peak at $50.

Three false peaks occurred in January 1970, July 1976 and December 2012, and I say "false" because one would have exited silver for other reasons before then. Or one could take the view they were final warnings to get out!

Each time that the four-year leverage breached our sell threshold, that particular bull market was over for a number of years. No matter how high the price was or how long it took to get there, the leverage number peaked just above the 1.50 level. Our thesis is therefore simple; sell silver and gold when this rare threshold is entered. What is the reasoning behind this indicator? There are four pillars to this theory:

1. In a precious metals bull market, silver will tend to outperform gold.
2. However, there is a limit to which this silver out performance can go.
3. This limit is hit at the top of major silver bull markets.
4. The reaching of this silver limit tends to also be the end of the corresponding gold bull market.

For example, back testing this indicator, you would have got out 3% below the top price of the 1968 peak, 12% below the 1980 peak, 6% below the 1998 peak and 3% below the 2011 peak. Using price per ounce numbers, this indicator flagged a sell five days after the 1980 silver bull peaked for a closing exit price of $37 as opposed to the closing $42 on the 21st January 1980. Sad to say, the majority failed to get out at such a high point.

Based on 48 years of historical data, We believe this indicator is useful in determining silver and gold tops. However, the next major top in silver seems a long way off, but at the other business end of the chart, we see that the indicator is at a low which has only been seen twice before in 1972 and 1984. One of these triggered before the greatest silver bull market ever and the other triggered at the other side of it as silver was obliterated during the disinflation of the 1980s.

What multiyear move in silver does this major low presage? My money is on a major move up in silver into next decade.

 


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

 

Back to homepage

Leave a comment

Leave a comment