The New Long-Term Silver Bull Market

April 20, 2016

The internet has come alive with all manner of warnings of a coming collapse in equity markets, specifically on Wall Street. As everyone knows, what happens there soon gets repeated on other western stock markets, with other stock markets nor far behind. If the warnings should prove correct, it is prudent to at least consider safe havens for the funds at one’s disposal in order to protect one’s wealth.

The chart below presents silver as a prime candidate for this purpose. It consists of the monthly closing price of silver from January 1968 to the latest London fix at $16.62 on 19th April 2016, as a proxy for April. The analysis complies with established principles  of preferred gradients in that:

  • All trend lines have gradients that are derived from the master gradient, line M
  • Derived trend lines are located with their origin at significant trend reversals so that they also intersect other trend reversals and – most important – so that the sets of parallel trend lines display particular channel ratios
  • It is known from three decades of exploration of preferred gradients that sets of three parallel trend lines when located correctly on the chart, display a channel ratio that corresponds to  one of a series of frequently seen ratios. Alternatively, when a strong channel set has a different ratio, there will be another channel set on the chart with a similar ratio.  

Chart 1. Dollar-rand exchange rate. Monthly close. January 1968 – mid-April 2016

The well-known ratios are, firstly, the 500:500 ratio of an evenly divided channel set; next most often seen is the Fibonacci ratio and the round numbers such as 400:600 and 300:700.  Trend lines that are members of such channel sets, tend to offer strong resistance or support, as the case might be.

The master gradient, identified by line M, is defined between two spike highs on the chart. All the derived lines have gradients that are either the same as that of line M, or they have a gradient that is calculated from the gradient of line M using the Fibonacci ratio. These trend lines are located so that they intersect significant trend reversals, with the exception of line W that has to second extreme top as its origin. 

The channel ratios of the sets of three parallel trend lines are:

MXY: 382:618   ABC: 380:620   UVW: 500:500   PQR: 384:616  

Line U is generated from the centre of the small bifurcated top on the left. Such points have been proven to be associated with strongly preferred gradients. While channel UVW is exactly evenly spaced, three the other channel sets comply with the Fibonacci ratio – 382:618 – to a high degree of accuracy. This adds much credibility to the analysis.       

The recent behaviour of the silver – a reversal higher marginally short of the support at line C and a new rising trend immediately after breaking above the steep bear channel MXY – is interpreted as the beginning of what seem to be a new long-term bull market in silver. The Trends table in the upper left shows the values of the trend lines as these will be at then end of May as a means to gauge possible future resistance.

First confirmation of the new trend would require a break above channel PQ at $17.63 for the end of May. Now that the precious metals exchange in Shanghai has opened on April 19th, with a near 5% increase in the price of silver on the first day of trading, line Q seems well within reach, probably even before the end of May if the trend continues.

Chart 2. Dollar-rand exchange rate. Monthly close. January 1968 – mid-April 2016At

A different analysis, with a new master gradient that connects the two major tops, may reveal additional strong resistance levels silver might encounter during the anticipated long-term bull market. But first the channel ratios, to establish credibility:

MXY: 460:540    ABC: 467:533   BCD: 491:509   PQR: 442:558   QRS: 446:554

Only one of these channel sets have a ratio from the list of well-known ratios – channel BCD differ only in the third decimal from being evenly divided. This is just within what is used as the limit of acceptability for known ratios. Channels MXY and ABC also have ratios that differ only in the third decimal, so that they validate each other. Similarly, channels PQR and QRS also only differ in the third decimal and so validate each other.

The Trends table again provide the values of the trend lines as these will be at the end of May, 2016. It is, of course, unlikely that even line B could be reached by then, but the price has to remain above line S, at $16.44, for the next six weeks, to remain in what could become the new long-term bull channel for silver. It is left to the reader to select whichever target seems feasible for the longer term, but whatever that is, the charts  display good evidence that silver has a role as a safe haven in times to come.

It is quite amazing how the monthly close of silver, despite all the evidence of the long term manipulation of the price, develop so many patterns that very accurately comply with the very limited guidelines that have been found to apply for preferred gradients. It seems there are forces at work in all financial markets that are not affected in any way by major events or by intensive and long-lasting manipulation. This is evident from all price series, over all time scales that have been explored for more than three decades.  

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