Saturday, February 12, 2011

SILVER BULL

I've pointed out in the past how consolidation size is usually predictive of how large a move will be once a breakout occurs. I thought I would take a quick look at the silver bull today using that criteria.

As most people know I'm mostly interested in silver during this bull market. I really doubt that I will ever buy another oz. of gold again.


So let's start by taking a look at the long term chart of silver.



As you can see the consolidation principle works perfectly in the silver market. So far we've had three major consolidations and each one as been followed by a powerful rally driven by the size of the preceding consolidation. 

The relevant fact is that the longest consolidation has also produced the biggest breakout. If that continues to hold (and I think it will) then the current rally is probably only half over.

A meager 46% breakout is way too small for a 30 month consolidation.
If I had to guess I would say silver might be in the process of forming a triangle consolidation pattern, especially if gold has one more drop down into a final intermediate cycle low. 


Ultimately I expect this breakout to launch silver to somewhere between $43 and $50 before the next consolidation phase begins. 

31 comments:

  1. Gary,
    I like this scenario of silver but what happens if it takes off on Monday and tests its recent highs around 31 before coming down. And if it goes to 31 first before pulling back, does it still reach 27 as you have suggested, or will the pull back be more shallow, say, 28 ??

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  2. Monty,
    I almost never suggest a "target" other than when a T1 pattern is forming. So any time I draw in a pattern it's just to show general trajectory.

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  3. Toby,

    Do you think after all the big moves in gold and silver, that we'll have to sell even some of our physical metals? I don't see any time soon for this, I'm talking way down the road. What I foresee is kind of like a lobotomization of all fiat currencies that goes to such an extent that even gold hyperbulls could not have estimated. Maybe it goes to the point where gold and silver just settle at a higher price and don't move much, kind of like what Sinclair suggests. I'd just hate to see a long term gigantic bull market like this end in such a way where you had to get out of your metals positions all together or risk giving away years of gains. The reason for this is because I like my physical metals and I'd just as soon hold them for decades. I do however intend on selling the paper positions, as I've seen what getting too attached to those positions can do to one's sanity levels.

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  4. Noah,
    All bull markets come to an end. This one will too. It will end when gold becomes stupidly overvalued and stocks ridiculously undervalued.

    Gold will clearly be in a bubble phase at that time. When that happens you have ignore all the talk of how this time it's different and sell.

    Because ultimately it's never different.

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  5. Gary

    What is your guidepost as to whether or not this next "correction" will happen? How high would gold or silver have to go before you through in the towel on the correction and believe the breakout is sustaining itself?

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  6. Howard,
    I've laid out a "plan" for when to re-enter. I will go over it again in tonight's newsletter for anyone who missed it.

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  7. Gary,
    For the long haul, what do you think about 'junk silver dollars'. I want something easy to convert to cash in Panama.
    Jim

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  8. I've heard several stories about how hard it is to get a decent price out of the junk silver.

    I tend to think it's something the dealers recommend to people just so they can get rid of it.

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  10. you believe that the amplitude of increase is proportionate to the length of the prior consolidation... there may be something to that.

    I'd propose an alternative interpretation of the same chart data. Please note that when silver takes off, the trajectory is steep. But, once it has peaked and pulled back (as has happened recently.. that is IT for several months. Thus, the next consolidation has probably already begun.

    Having said the above, I'm not selling. "Son, we're in a bull market" -(old turkey) ... but I am not adding to positions either.

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  11. In response to the Panama question.... Why mess with junk silver, buy silver coins from a government mint like the Canadian and you will have not problem converting them in Panama at any time IMHO. Junk silver, that is a USA thing and it would confuse and Latino as to why someone would buy it in the USA and peddle it in Panama. Not such a good idea. I recomment silver Mapleleafs for you situation.

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  12. ..if I may post a post script.. For anyone thinking of transferring PMs across international borders.... you better do your homework because the TSA would love to seize your PMs as you try to transport yourself.

    If you live in Panama then negotiate a silver purchase to be delivered in Panama.

    Anything else will be rife with risks.

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  13. Gary,
    In response to your "junk silver" question. I was going to buy some through my bullion guy but found that eBay, yes eBay, is a great place to buy and sell the stuff. You'll end up buying and selling for about 10% under the spot price. The nice thing about eBay is that it gives a you place to get rid of the stuff at a fair price. If the "final financial destination" isn't reached and junk silver ends up playing no short term monetary position, you'll at least be able to rid yourself of it pretty easily. Good luck, Mike B.
    P.S. - I'm from the camp of $300-$500 per ounce silver; based soley on the Gold/Silver ratio, demand from the average joe blow investor, and sky rocketing demand from the emerging countries. It may take a little longer than people think but, we will see $300 silver, minimum. But that's an argument for another day.

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  14. Due to massive corruption in silver physicals silver could double in one 24-hr period. This would be caused by an intense short-covering rally triggered after a certain move of say $2-3 an ounce....then go ballistic.

    Longer term $700 silver. Of course the buying power of the US$ could be practically defunct. Still useful to pay long-term fixed mortgages...

    w

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  15. The US deficit will be 15.47 trillion by Sept. 30. Therefore, gold will be 1600 - 1700 by year end with silver reaching 39 to 43, respectively. The theory that for every one trillion equals $100 on the gold price seems to be playing out pretty well. I think gold will break out to new highs somewhere in the next month or so like March - April when the debt ceiling gets raised so Bernanke can monetize it.

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  16. what is PMS? TSA? And reference to crossing intl borders. ll

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  17. Luis, 'PMs' is short for 'precious metals'... gold, silver, etc.

    TSA is short for Transportation Security Administration (TSA) now part of the Homeland Security apparatus; the new Gestapo-Lite.

    Since it's creation the TSA has been documented to have illegally, well under the mega-umbrella of the Patriot Act no longer illegally, seized a variety of things of value at airport screenings including PMs and cash all in the name of fighting terrorism. They can seize anything they wish w/o a warrant. In short once you enter into the waiting line of a TSA checkpoint you have abrogated your rights to illegal search and seizure exceptions previously guaranteed by the US constitution.

    Lest anyone thinking I am exaggerating, fine but please don't water down my warning about transporting PMs through TSA checkpoints.

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  19. I think the way you can currently do it is drive up into Canada through one of the smaller border crossing checkpoints. You could at least start getting out of the country with small amounts that way. The Canadian border crossings aren't too aggressive. If you could get into Canada, then boat travel to Tanzania or maybe Chile. The options are getting slim. Is this what pre-Nazi Germany was like? Where the walls start encroaching.... Some say "Nah, that's not going to happen".... Others like me can see it, and I can't say I'm comfortable. God help us all!

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  20. The manipulation here this morning was completely laughable! Who could say there's not someone behind the curtains trying to pull levers?! The silver stocks reacted like "Oh my God!!!! Silver's gonna crash!!!" How silly! This is becoming so obvious and more desperate looking by the day. How long will it take for the shorts of gold and the controllers to understand that this is a futile exercise? The world is demanding delivery, and the gig is up!

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  21. HOT ITEM! TSA is now stationing Agents in the JETWAYS of Flights from USA to Panama! Had a buddy who had $400 "YES" Just $400 attacked by the MONEY DOG German Shepard & TSA guy in the Jetway. The DOG "Sniffed out" $400. You are legal to take out up to $10,000 so gthey are obviously looking for Big Time Money Movers. BUT BEWARE they're ramping up the Excitement level. & Regarding the dogs.....Would'nt they be MORE EFFECTIVE than the Back Scatter X-Rays @ finding Explosives? Much Cheaper too! But they cany "UNIONIZE"!

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  22. Historically silver has always sold at 1/16 the price of gold. This is called the "silver ratio." Given that, silver is way under priced. It should be selling for around $222 not $32.61. Also, when the US dollar is no longer the world's reserve currency, people will flock to hard assets like gold and silver. Because gold is so expensive, people will jump into silver and drive the price way up. I would go long silver with everything you've got.

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  23. 1/16 is when silver becomes "real" money...Tied to gold currently at 1/25....I pushed $14,000.00 into junk silver through ICA, a rock solid dealer (They buy back what they sell). Mark you...I will put in another buy at about the same amount. Everybody is dumping the dollar "hard;" China, Holland, France, even Mexico's central bank is not accepting dollars. They "KNOW" hyper inflation is coming...the fed can't print money fast enough to pay for the roll over debt and buy Treasury bonds. Get Silver while you can...gold is way over the top unless you have millions already...silver in junk bullion (coins mented prior to 1964) or bars...dosen't matter except Junk stays liquid and can't be traced. The world bank amoung other nations are preparing to dump the dollar as the world reserve currency...proof of that is everywhere..you read it, hear it, and you see it when you try to exchange to another currency. Better get in NOW...He who hesitates is lost....Jean...a combat vet..retired Air Traffic Controller.

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  24. Just as a word of caution one of my friends who bought junk silver discovered that when it came time to sell it back most dealers wouldn't give him even close to a reasonable price for his junk silver.

    I tend to think this is probably stuff that the dealers just want to unload on someone.

    I would stick with Englehard bars or Silver Eagles if you don't mind paying the premium.

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  25. Pardon my ignorance but I'm new at this... what is 'junk' silver?

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  26. Junk silver is a term used often to refer to silver contained in pre-1965 US coinage. Google it or visit a silver dealer's site to find out more. Some swear by it, some swear at it. DYODD, which means 'do you own due diligence'

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  27. this is for jim,why would you sell your silver in panama when it is a dollar based nation..give me some ideas you have,i want to move to panama,, thanx jim mc

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  28. also jim they have stationed 30 new irs agents in panama,so have your ps and qs ready because they are there and waiting...

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  29. Whaleshark-- I heard or read that The backscatter corp is owned by the old homeland insecurity head under bush-Jerkoff or Cherkoff or something like that so now he is making millions radiating people with ionizing radiation and screwing up their DNA-The radiation it puts out isn't insignificant -it is not less than what you get from flight it self- that is the tsa's propaganda

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  30. While it is probably important to get out of this fiat paper and get silver and gold -just remember the guns and ammo to protect it- like Neo said --LOTS of Guns and LOTS of Ammo

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