-- Posted 9 October, 2005 | | Source: SilverSeek.com
Nobody Knows How Much or When, Only that it Will
by Charleston Voice
If you say the same thing often and long enough eventually you’ll be right. The ole "broken clock being right twice a day" postulate.
Well, here I am again with pumping enthusiasm for silver. Here’s why:
As most of you know I like to follow the market elements with weekly MACD charts. On the Gold/Silver Ratio chart the strength has swung to favoring silver over gold as evidenced by the top MACD Histogram tipping over in early September. And now with the lower MACD indicator chart having the slower white smooth line poised to cross over the lighter purple line we should really pick up steam. Don’t forget that silver’s volatility works both ways - greater gains percentage-wise to the upside as well as greater pullbacks. So, then, if silver is to outperform gold then BOTH metals will rally.
Yes, the ratio is a "long way from its historic mean of 15-16", but the fun and profits for all of us is getting there. Enjoy the journey. We don’t really know the final destination number, whether it be 16 or 10, but on our journey we can pile up wads of fiat currency. I don’t really care. Watch the ball as it’s bouncing, and be not concerned where it’ll finally end up.
The weekly has now crossed below its 50-WMA, and hopefully can take out resistance at 58 or so, and fill that gap left over from May. That swing low of 55.40 in May will probably prove tough to take out on this run, but when it falls it will be dynamic.
So, you see I have no idea what the "dollar price" of gold or silver shall end up. Most projectionists put gold going to $491-$505 on this run while others talk of $525. Who knows? Nobody. When the G/S Ratio reverts to positive the bull rally should be near its end whatever their dollar prices shall be. You do the math.
Here’s the weekly pulled back to 1990. Those swing lows of 42.99, 47.01 and 51.81 give us the next resistance points to be taken out on our bull market journey. This is just one more tool to use with your other road maps.
The ratio "bottomed out" at 14 in 1980 with silver "topping out" at $53. Some professionals say we’ll never see that again (the ratio, that is) because we were adjusting from coming off a bimetallic standard, the big bad Hunt brothers, etc. Not so. We’re talking relativity here. Are you likewise to believe we’ll never see a P/E Ratio again between 7 and 14 when today we’re at something like 23? A Gold/DJI ratio of 2 when today we’re at 22? A Gold/Oil Ratio of 25 barrels/oz when we’re at 8 today?
Now, I don’t know what the ratio for a new home would be in gold ounces today. But, what I do recall from my life insurance selling days is that when reviewing older policies I’d frequently come across older clients with $2,500 policies. I’d ask what prompted them to buy it. They’d respond that it was an insurance policy to pay off the house should the breadwinner die. Those were post-WWII policies. Premiums were 50 cents a week. Gold was $35/oz. then. That $2,500 converts to 71 ounces back then. If you believe your $250,000 home today will hold its value in any real estate decline then using that same 71 ratio would need a gold price today of over $3,500 per ounce! One of these numbers is out of whack, wouldn’t you say? Drive around your community and try and find a few homes that were built in the post-WWII era and what they cost new then, and what they’re worth today.
The point I’m trying to make is that to invest successfully we must look for investments that are undervalued in terms of their relativities to other investments and are at sharp variance from their historic means. Adam Hamilton has driven this basic element home to us many times. Where we make our mistake is thinking of relativity in terms of dollars. That’s understandable as we’ve known our dollar as the only medium of exchange to get the other things we want by accepting the dollar as payment. We know we can pass it along to others. Every buying decision you make you’re asking yourself "Is it worth it?". That is a question of relativity you’re asking yourself. Should I buy something, or hold onto my cash? If I delay my purchase will the same item cost me more tomorrow? Or, will the seller even accept my dollars tomorrow?
These are the mental gymnastics that potential gold and silver buyers are asking themselves over this long weekend. When the same real estate fever grips the precious metals market. Look at this way. If you’d held on to your gold double eagles (numismatic) in 1934 when gold was confiscated at $20.67 you could have bought that same $2,500 house for $1,468 - a 73% haircut just 12 years later!
Relativité, toujours, relativité !
- - CV
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-- Posted 9 October, 2005 | |
