I’ve heard many people talk before about the “Black Cloud”. To them, it was most certainly the explanation for some unfortunate occurrence or stroke of bad luck. They figure control was out of their hands; it was destiny or fate that resulted in their regrettable situation. So, they ride the ebbs and flows of their life surrendering their fortunes to the all powerful “Black Cloud”.
I say, “Nonsense!”
It’s an excuse and nothing more. The facts are on the table. Those who wish to see them need do nothing more than open their eyes and look at the truth. Their investment successes or failures as well as their future prosperity and survival depend on it. If they would only look, they would see that…………….
………….Gold is money!
Most of us have only known fiat paper’s claim to legal tender status. This has shaped our frame of reference leaving no room for other alternatives, but Gold is the only “real” money. There’s a 5,000 year history as proof and nobody can change that. No printing press operator or paper futures market maker can or will exert total control, forever.
Entities or groups of conspirators may try to interfere with the natural monetary order, and they may have some measured success, but they will never be able to suppress the ultimate power of Gold in perpetuity. Gold is a threat to the “Puppet masters” who are desperately trying to steer their unwieldy fiat money regimes. As we watch their grasp begin to slip, it becomes easier, at least mentally, to price “things” in terms of Gold units or ounces.
I always try looking at the big picture, first, and then I zoom in. Normally it’s the macro-Hubble telescopic view, followed by the wide angle binocular view, culminating in the conclusive electron microscopic view. This time it didn’t happen that way, so I’m going to present it to you the same way it first appeared to me.
I’ve been aware of the rapidly rising price of Silver (POS), but I had dropped the $Gold:$Silver Ratio (GSR) out of my chart crosscheck. I would look at the daily ratio number, but not the chart. Before proceeding, it’s important to note that Gold is in a secular bull market. Gold is reasserting itself, through natural market forces despite 20+ years of Herculean efforts to the contrary, as the primary global monetary influence. It’s just a matter of time and Gold is a patient, self confident store of wealth. It lies in wait, ever so slowly climbing the steps back to its rightful place atop the monetary throne.
About 2 weeks ago, while perusing the charts, I plugged in the GSR and what I saw really grabbed my attention. Since then, I’ve been watching and it’s now time to throw some more technical facts on the table.
Recently, when I plugged in the GSR I hadn’t changed my chart settings, so it came up daily/6 months. The shear slope of the drop gave me reason to believe there might be a dramatic trend change in progress. I missed seeing it earlier by just watching the ratio numbers and we’re now looking at a ~17% drop in the GSR in the last ~3 months. In other words, one ounce of Gold bought 77 ounces of Silver in October, but now only buys around 64 ounces.
That’s a significant shift!
When you consider that the price of Gold (POG) broke through and held above $400 during that same period, which were new 7+ year highs, it makes it even more dramatic. Also, notice the Silver bullish (no bears in sight) crossover of the 50/200dma (right, red oval) with both appearing to turn down suggesting a potential continuation. (I’ll address the head fake later.)
Since I started this analysis backwards (for me anyway), I decided to continue moving out slowly to determine the intermediate trend and the chart above looks like somebody just jumped off a cliff. The uptrend has broken down with more than just your average dose of conviction. This is a bold move, so where will it end?
The GSR has broken a 6 year uptrend (1) as well as another level of strong support that goes all the way back to at least 1994 (2). It is now testing the top of the original symmetrical triangle breakout (3) for the first time in 18 months and there appears to be some consolidation here as this support level is presently holding.
If the GSR continues below the high 50’s (4), then (looking at the chart below) I see a drop into the ~20-46 range with a probable test of 35. If 35 is broken, then a bottom bounce is likely with a possible overshoot to the 30 year low of 16. In that scenario, even if the POG remains flat, which I think is highly unlikely, the POS will rise to $11+ at a GSR of 35 and will rise to $25+ in an overshoot to 16. Now, ponder the POG at $500 or higher!
This doesn’t mean Gold’s bullish trend has faltered. Rather, it only means that Silver is “hyper-bullish” and will rise faster than Gold.
I see clouds moving in and I think they will be here soon. Why? Since the mining stocks lead the metals, and we know that the GSR (or Gold/Silver exchange rate for those of you mentally moving them toward currency status) has dropped by ~17% in favor of Silver since October, then for my analysis to be correct the Silver Stocks must confirm and support this pattern. Here’s CDE priced in Gold:
The first thing I noticed was that this trend developed ~8 months ago in CDE signaling the future GSR trend. One stock is not enough, but before I go and confirm this across a broader cross section of the Silver sector, I want to point out the 50/200dma cross in August (red oval). Even though the GSR head faked then (previous chart at top) with a zigzag before crossing again in October, CDE priced in Gold crossed and the gap has widened as both moving averages continue descending. Also, in October one ounce of Gold bought 127 shares of CDE, while now an ounce of Gold only buys 68 shares. That’s a whopping 46% drop in ~3 months! (I’m going to only focus on the last ~3 months, but notice March-July where one oz. bought ~250 shares of CDE.)
There’s a message here!
I went to the charts of 4 other Silver stocks for further confirmation, and here’s the list for that same ~3+ month period:
They range from a high of 46% for CDE to a low of 27% for HL. Not only did they all have similar patterns and signal the move months earlier than the GSR (except SIL), but all 5 stocks outperformed the POS by nearly double, if not more. This leading move by the Silver stocks along with their out performance of the POS by a significant percentage, confirms the GSR contraction trend. Also, all the stocks’ downtrends relative to Gold remain intact indicating a likely continuation resulting in further strengthening of the POS relative to the POG.
The Gold Bull is alive and well. The sky is the limit as Gold continues its ascent to reclaim the monetary throne. Silver is also on the move and if my projections hold true, then the POS will likely outperform the POG by at least 2 to 1. Also, the past leverage of Silver stocks suggests they’re likely to at least double the price action of the POS giving them a ~4 to 1 edge relative to the POG. Those estimates are based on a stable market environment where demand can be met with adequate supply and will likely prove to be very conservative if we enter a manic “squeeze” phase. They’re a linear oversimplification of a non-linear relationship. Regardless, suffice it to say that Gold’s crown will be made of Silver!
That “Black Cloud” Theory doesn’t exist. Bad luck is a test of your character and good luck is the byproduct of hard work, preparation, and timing. Those dark clouds rolling in aren’t black. They’re not even gray. They’re Silver lined! If you’re willing to work hard and prepare yourself, then now is the time to consider buying physical Silver and Silver stocks as a leverage play along with your Gold investments. If you choose to do so, then you’ll most likely avoid a financial test of your character as the “Puppet masters” lose control and the fiat monies broadly weaken relative to the King of Money……..
…….Gold!
David Chuhran
spank38@bellsouth.net
Disclaimer: The author owns SSRI and several other precious metal stocks and mutual funds not specifically mentioned here. This is not meant as investing advice and is only meant to show interrelationships within the precious metal sector.
Copyright © 2004 David S. Chuhran. All Rights Reserved
-- Posted 30 January, 2004
