• 12 hours Italy’s Central Bank Embraces Sustainable Investing
  • 15 hours Trump Lifts Metals Tariffs To Cool Simmering Trade War
  • 18 hours Researchers Push To Limit Space Mining
  • 20 hours Could China Start Dumping U.S. Treasury Bonds?
  • 1 day Is Winter Coming For HBO?
  • 2 days Rise Of EVs Signals Peak Gasoline
  • 2 days Jeff Bezos Doubles Down On Space Colonization Ambitions
  • 3 days Gold Mining Stocks Stuck In Limbo
  • 3 days Executive Order Targets Huawei Over Espionage
  • 4 days Why Now May Be The Best Time Ever To Hold Gold
  • 4 days Fake News Sinks Shares In UK-Based Bank
  • 5 days De Beers To Build $468 Million Diamond Recovery Ship
  • 5 days Moody's: Turkey Faces Possible Credit Downgrade
  • 5 days Tesla's Solar Sales Are Slipping
  • 5 days Auto Industry To Get Temporary Tariff Relief
  • 6 days Welcome To The World’s Biggest Free Trade Area
  • 6 days Central Banks Are Stockpiling Gold At The Fastest Rate In Half A Decade
  • 6 days U.S.-China Impasse Threatens Rare Earth Trade
  • 6 days Wall Street Bears $1 Trillion Brunt Of Trade War
  • 7 days Mobile Sports Betting Isn’t Quite Minting Millionaires Just Yet
Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

How Millennials Are Reshaping Real Estate

How Millennials Are Reshaping Real Estate

The real estate market is…

Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

  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