14 February 2011

James Turk On Silver, and A Possible Twist of My Own

James Turk is extremely knowledgeable on the precious metals markets, and I always pay attention to what he says. He is sometimes a little more aggressive in his forecasts than I am, being of a more timid sort about dates and that sort of thing. He serves as a good counsel to me when I wish to test my own theories and knowledge of certain aspects of the metals markets, and am grateful to him as well as several others for this.

And so here is something which he just put forward that struck my eye, and I thought you would like to see.   The timeframes on this chart are a bit intimidating.  I think that if and when silver breaks out you can toss timeframes out the window.  This market is like a compressed spring with a long and heavy weight on it.

"This chart shows a massive accumulation pattern, marked by the green lines. This pattern is a story of strong hands and weak hands, specifically, of silver moving to the former from the latter.

From its $50 high in January 1980 to its $3.50 low in February 1991, the weak hands were shaken out. At that point, the accumulation by strong hands – who were buying because the recognized that silver was an exceptional bargain – became the dominant force. Their buying power was stronger than the selling pressure of the weak hands, and the price of silver responded by starting to climb. It was classic stage one action, but here’s the important point.

Silver is still in stage one. It won’t advance into stage two until $50 is exceeded, just like gold did not enter stage two until its previous high of $850 was hurdled.

I expect that silver will exceed $50 this year, which is a point of view I first mentioned in my outlook for 2010

Admittedly, I was a little early with my forecast about when gold would enter stage two. So perhaps I will again be early by forecasting that silver will enter stage two of its bull market this year. Regardless of the accuracy of my timing, one thing is clear. Because it is still in stage one, silver remains good value."

James Turk
February 14th, 2011

Here is a slight expansion and twist on James' chart of my own. I suspect his thoughts are along the same lines.

The potential cup and handle formation is not valid until there is an active and confirmed breakout as we saw in the big cup and handle formation from last year that served on the breakout through 20.  Cup and handle formations are generally accumlation patterns, with a subsequent breakout that confirms and defines them.

Since there is a monetary element to silver, I am not so confident in this scenario.  And if the dollar does lose its place in the world and start dropping harder, then this chart may look like a wiggle in what is to come, if there is a panic to grab dwindling supply.  But one cannot plan on that sort of thing happening.  And it is certainly not a constructive or desirable outcome, as most insurance policies are generally not harbingers of constructive and desirable outcomes when they pay off.   Unless you are engaging in an insurance fraud, that is, with the underwriter being AIG.

Please keep in mind that this is a logarithmic chart, and distorted in the part which I added below.  Also bear in mind that gold has already broken out and over its previous nominal highs from that same time period.  So those who say it is not possible are not considering what is already occurring in other related markets.

There is little doubt in my own mind that the silver market has been manipulated, and that we probably know who has done it, and the ways they have done it, and why.  Only the eventual outcome and settlement seem to be in question.  And to say that this contains some great mothering exogenous variables is to barely capture the fullest extent of it.

Illustration of a Classic Cup and Handle Formation