Silver Charts Say $5 Or Lower Is Coming

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SILVER CHARTS SAY $5

Even the most casual silver investor must be discouraged with what has happened to silver prices recently. But what about those who were/are super bullish? How do they feel?

As I read various reports and articles, I sense some back peddling on the more extreme predictions which were so prevalent just shortly more than a month ago. On the other hand, I also sense a reluctance to let go; to just admit they were wrong and move on.

Experiencing the reality of silver’s price decline of more than one-third in barely three weeks has left its mark in ways that cannot be ignored. It is ignored, though. And when it isn’t ignored, it is excused; or explained in terms that are supposed to make you feel better, but somehow make you feel worse.

Rather than rehash all of the depressing details verbally, I thought it might be a good idea to look at some silver charts which give us pictures of the damage that has been inflicted on a technical basis.

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Gold Price Is Not About Gold

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The gold price is not about gold. In fact, it tells us nothing about gold.

So why are people so obsessed with the price of gold? In most cases, it is because people likely view gold as an investment opportunity. “How much can I make and how quickly?”

However, the question which continues to plague gold investors and others is “Why didn’t gold respond the way we expected?”

The answer is found in the term unrealistic expectations. 

When gold is characterized as an investment, the incorrect assumption leads to unexpected results regardless of the logic. If the basic premise is incorrect, even the best, most technically perfect logic will not lead to results that are consistent.

Here are some examples of inconsistencies when viewed through the lens of faulty logic based on incorrect assumptions…

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Expectations For Higher Gold Prices – Fly In The Ointment

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Expecting higher gold prices? Read on…

From Wikipedia:

“In English, the phrase fly in the ointment is an idiomatic expression for a drawback, especially one that was not at first apparent, e.g.

     We had a cookstove, beans, and plates; the fly in the ointment was the lack of a can opener.” 

For four centuries, ‘a fly in the ointment’ has meant a small defect that spoils something valuable or is a source of annoyance. The modern version thus suggests that something unpleasant may come or has come to light in a proposition or condition that is almost too pleasing; that there is something wrong hidden, unexpected somewhere.”

In general, with gold prices currently at $1500-1600 per ounce, the expectation among participants in the gold trade today is for much higher gold prices going forward. And most of them, I think, seem to believe it will happen sooner, rather than later; and quickly, too.

Their enthusiasm rests on two assumptions: 1) That the new unlimited amounts of cheap credit made available by the Federal Reserve is hugely inflationary. 2) That the effects of the inflationary avalanche will destroy the US dollar, thus resulting in higher gold prices.

On the surface, both statements are logical and rooted in correct fundaments. But there is a fly in the ointment.

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Gold Stocks Collapse…Much Worse Than Expected

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GOLD STOCKS COLLAPSE

You would think that the recent collapse in prices for gold stocks was harsh enough to silence those who advocated their acquisition as the “best way to play the coming gold boom”, but they are back at it with fervor.

Some investors share in the enthusiasm, too: “On March 18th 2020 the precious metals mining stocks began what will be the biggest bull run in living memory…” (from one of my readers)

The implications of the statement are fairly clear. Get ready for an exhilarating ride to the moon, or thereabouts, if you are in the rocket ship named ‘gold mining shares’.

Before you buy your ticket, though, here are some facts that may help you decide whether or not the gold stock rocket is for you.

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Everything Is Going Lower, Including Bonds

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EVERYTHING IS GOING LOWER

Nothing epitomizes cheap money more than the lofty level of bond prices and their corresponding low yields. The old adage of “never chase yield” seems to have been pushed aside in favor of “buy more when the interest rate approaches zero”.

Yield-hungry investors think they are being conservative, though. Some of that reasoning is due to the obvious volatility of the stock market; especially during the first twenty years of this century.

BONDS BIGGER RISK THAN STOCKS

Even before the latest stock market dump, bonds could be considered a bigger risk than stocks. The risk is greater now than it was in 2007-08; and probably more so than at any other time in history.

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Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10

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GOLD-SILVER RATIO TOPS 100 

Recently, the gold-silver ratio topped 100. Nevertheless, it doesn’t seem to matter what the ratio is, or how high it goes. Those who prefer silver always seem to think it’s going to reverse “soon”.

It might; maybe significantly so, too. But it doesn’t mean a thing. There are no fundamental reasons for the ratio to move up or down at any given time.

Actually, there is no reason to track it, either. Except that those who love silver think it is correlated in some way with gold; its not. And that silver is cheap relative to gold (it is), so it must be a better buy (its not).

But what if there was a correlation; or inverse correlation? Shouldn’t we see something on a chart that would indicate such?

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Cash Is King Right Now, Not Gold

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CASH IS KING FOR NOW

Amidst the fallout of stock markets crashing worldwide, gold (silver, too) and oil imploding, and the scare of coronavirus, the dollar itself stands tall. That is not what some were expecting. Nevertheless, unrealistic expectations abound today, so let’s see what we can learn from this.

When investors sell en masse, they generally turn to cash as a resting place for their money. Cash for most people today still means US dollars. This implies an increase in demand for US dollars.  Gold investors and their advisors seem to have been expecting just the opposite.

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Silver Loses Its Mettle – Part 2 (Technicals)

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RE: SILVER LOSES ITS METTLE 

Last week I talked about unrealistic expectations for the price of silver (see Silver Loses Its Mettle). My comments were centered on two specific factors: 1) silver’s primary role as an industrial commodity and 2) the fallacy of the gold-to-silver ratio.

Both of these items have their root in fundamentals, or lack of them.

In addition, I pointed out the fact that the price of silver has declined significantly in every single recession of the past fifty years.

Not surprisingly, the technical side appears to reinforce the lack of fundamental support for higher silver prices.

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Silver Loses Its Mettle

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SILVER LOSES ITS METTLE

Actually, it is silver investors who might be losing their mettle. Coping well in the face of a fourteen percent decline in the vaunted white metal must be very difficult.

The size of that decline happens to be right in line with the major stock market indices, all of which (Dow, S&P, Nasdaq) lost similar percentage amounts this past week. No better, no worse for silver; but it is ironic.

We have been told over and over that silver is a hedge against that type of stock market action.  Also, we’ve been told that silver would be more explosive that its well-respected brother, gold. It was – sort of. The correct word is implosive.  

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Gold And Stocks Headed Lower

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GOLD AND STOCKS HEADED LOWER – NO CORRELATION

Gold and stocks are moving south together; but they are not correlated. Nor, are they inversely correlated, as some gold enthusiasts claim.

Reference to gold as a safe haven has some investors buying gold to hedge against a stock market crash. It is almost as if gold has become a pseudo defensive stock.

It seems investors actually expect gold’s price to go up when the stock market goes down; and vice-versa.

If that were the case, how do you explain the extended periods when both moved together; or the price action of gold relative to stocks in the past four days? Gold currently is lower in price than it was before stocks tumbled nearly 4000 points.

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