Silver reached a 30 year high in April of 2011.  Since then it has fallen nearly 70%.  In any correction or bear market – call it what you want – we hear calls for lower prices as the market falls.  Similarly, as a market rallies we hear supposedly well-reasoned arguments why prices should rise even higher.

Examples:

• Gold peaked over $850 in 1980. There were calls in 1980 for gold at $1,000.  Currently we hear analysts calling for $900 gold.
• The NASDAQ peaked in year 2000 about 5,000. There were probably a few investors calling for 10,000.
• Do you remember the call for the Dow at 36,000?
• When silver was selling for nearly $50 in April 2011, which in retrospect was clearly a move too far and too fast, there were calls for $100 silver. (Note:  $100 silver is coming – the “money printers” and deficit spending governments will make it happen.)
• It is easy to project the continuation of a trend. But how do we obtain more objective information?  Use Ratios!  Consider:

Silver compared to the S&P 500 index since 9-11.  The graph clearly shows that silver prices streaked higher in 2010 and 2011 compared to the S&P.  The chart also shows that silver is currently low compared to the S&P and that the linear trend indicates the ratio should triple in the next few years.

Silver compared to the S&P 500 index for 30 years.  Clearly silver is inexpensive compared to the S&P – based on 30 years of data.  Expect silver to rally.

Silver compared to gold prices for 30 years.  When the ratio is low so are silver prices.  But when silver rises, it usually moves much faster than gold so the ratio rises to the high end of the channel.  Note the circled lows in the ratio in 1991, 2008, and 2015.  Significant lows in silver prices occurred in 1991 and 2008.  I suspect late 2014 – early 2015 will be seen, in retrospect, as a significant low in silver prices.  (Repeat:  $100 silver is coming.)

Silver compared to crude oil for 30 years.  Even though crude oil prices have crashed in the past year, the ratio is still in the middle of its 30 year range.  Silver is NOT expensive compared to crude oil.

CONCLUSIONS:

Based on the 30 year ratios to the S&P 500 index, gold, and crude oil, silver is currently inexpensive.  The High-Frequency-Traders can push prices lower or higher quite easily so this analysis says little about what silver prices will do next week or next month, but it clearly says that in the long-term silver prices are low and likely to rise significantly in the next few years.

If you are stacking silver (or gold) then appreciate the long-term trends and the gift of lower prices that has been given to us by the central banks and HF Traders who wish to pretend that all is well in our global financial systems.

Gary Christenson

The Deviant Investor

DOW                                           – 195 on 1650 net declines

NASDAQ COMP                            – 62 on 1500 net declines

SHORT TERM TREND                   Bearish (change)

INTERMEDIATE TERM TREND       Bullish

Editor’s note: This is an abbreviated update because of travel. I’ll give a complete update and make up the numbers on Friday’s update.

STOCKS:I thought the action today was pretty bad. Can’t blame it on the dollar which has been taken to the woodshed. .

Today the so called good 6 months ended. We are now entering unfavorable seasonality. More on that in Friday’s update.

 I think that we are close to a short term rebound, but I suspect it will be a counter trend bounce.

GOLD: Gold collapsed for $28. The story was that a drop in initial claims would cause the Fed to raise rates earlier rather than later. I know one thing. This is a very skittish and choppy market. We’ll stay bullish for now since the yellow metal has not broken its lows of April 24, but we need to keep a close eye.

Intermediate term investors are long the SPY from 206.41. I think we will use a short term rebound to get out of this position.

System 7 traders sold the SSO at 131.68 for a gain of .09. We gave back a nice gain, but it’s better than a loss.

Todd Market Forecast for Thursday April 30, 2015

Available Mon- Friday after 6:00 P.M. Eastern, 3:00 Pacific.