Some Long-Term Cycles for Silver

Charts created using Omega TradeStation 2000i.  Chart data supplied by Dial Data

Last week I discussed long-term cycles for gold so I thought I would follow this up with some notes on long-term cycles for silver.  One would presume that silver’s cycles are the same as gold and they would be wrong. Given their similarities as precious metals, their cycles do overlap so that it appears that their cycles are the same. But gold and silver march to their own beat.

Silver topped at $49.50 in April 2011. Gold did not make its high until September 2011. Gold and silver both bottomed on June 28, 2013 but then in December 2013 gold made slightly lower lows while silver made a higher low. A divergence?

Like gold, silver does not have a long trading history. Silver has been, unlike gold, a key industrial metal. The price of silver was very steady for years through the 1800’s at around $2. Silver spiked during the US civil war then went into a long decline with the only significant rebound occurring during WW1. Silver ultimately bottomed at the depths of the Great Depression at around 25 cents. Silver prices began a slow rebound but it was not until 1967 that it regained a price of $2.

In the previous week’s write up on gold cycles, we noted the long-term Dewey/Dakin model and the Stiffel Nicolaus model of long-term inflation. These cycles pertain to silver as well although silver’s cycles might step outside those boundaries somewhat. Ray Merriman of MMA Cycles www.mmacycles.com has noted that silver may have an 18-year cycle. The observation is based, however, on only a few observations.

For silver prices, there was an important low for silver in November 1971 (not seen on the chart). The February 1991 low (1a on the chart) would have been 19 years and 2 months after the 1971 low while the February 1993 low (1b on the chart) would have been 21 years and 2 months after the 1971 low. Merriman believes that the 18-year cycle has a normal range of 15-21 years. Both the 1991 low and the 1993 low came during the latter part of the cycle. At $3.50, it was the lowest recorded low since 1974.

While Merriman refers to silver’s cycle as being one of 18 years that particular cycle stretched out to 21 years suggesting that there may be a 21-year cycle. As I noted in the discussion of gold cycles, cycles subdivide into two’s or three’s. In this silver’s case, one might find two 10.5 year half cycles or three 7-year cycles. Of the two, three 7-year cycles are more likely. A seven-year cycle would have a normal range of 5-8 years.

So what happened? In February 1976, there was an important low near $3.80. That low labeled as A on the chart came only 4 years and 3 months after the November 1971 low. In many respects that was too early for the 7-year cycle low. In June 1986 (labeled B), there was another important low. That low came in nine years and eight months after the 1976 low. It seemed too long to be considered . But there was also an important low seen in June 1982 (labeled a) and that one came in at ten years and eight months after the 1971 low. It is very possible that the cycle that lasted from 1971 to 1993 unfolded as two 10.5-year cycles.

Merriman also notes that silver has a shorter cycle that lasts 4.34 years. The 1976 low fit that pattern given it came 4 years 3 months after the 1971 low. The 1980 low came 4 years after the 1976 low but the 1986 low came in 6 years later. However, there was also a 1982 low and the 1986 low came 4 years later. The 1991 low came in 4 years 10 months following the 1986 low. These fit the 4.34-year cycle quite well. Then came the 1993 low, which did not appear to fit the cycle.  

Given that the double bottom of 1991 and 1993 came in 19 and 21 years following the 1971 low, a cycle of 21 years might make some sense. Trying to determine cycles is not particularly easy but often patterns do emerge. So how would the next cycle unfold? An 18-year cycle or another 21-year cycle?

If one were using the 1991 low the next 18-year cycle low would be due from 2006 to 2012. If one uses the 1993 low, the range becomes 2008-2014. In 2008, silver prices fell a very sharp 60%. The collapse was all over in 7 months. In terms of a drop, the October 2008 low fit an 18-year cycle well. Indeed, it appeared to be the 18-year cycle low until the 2011-2013 collapse came along. That collapse saw silver prices fall 63% and has thus far lasted two years. Given a steeper collapse and longer period of time, it is more likely that might be the 18-year cycle low. The June 2013 low came 20 years and 4 months after the 1993 low. It is labeled as 2? on the chart.

Once again, that raises the probability that the current cycle is in reality a 21-year cycle. Let’s examine interim lows to see if there was either a 10.5 year cycle low or two 7 year cycle lows. There was an important low in silver in November 2001 (labeled C). That came 8 years and 9 months after the 1993 low. Again that appears to be too long for the 7-year cycle. The next major low occurred in October 2008 (labeled D). That came just under seven years after the November 2001 low. If the November 2001 low and the October 2008 low were 7-year cycle lows the next 7-year cycle low would be due from 2013 to 2016. In that respect, it overlaps with the next projected 18-year cycle of 2008-2014.

If one goes back to the 4.34-year cycle one discovers there was an important low in July 1997 (labeled b) which came 4 years and 5 months after the 1993 low. That fits well with the 4.34-year cycle. The November 2001 low (labelled 2) came 4 years and 4 months after the 1997 low. Again, that fits the 4.34-year cycle well. The next low came in August 2005 (labeled c) which actually was a higher low then one seen in May 2004. Given the August 2005 low came just 3 months shy of 4 years it fit the possible 4.34 year cycle much better than one seen in May 2004. Next came the low of November 2008, which was only 3 years 3 months after the 2005 low although it was 4 years 6 months after the May 2004 low. If this pattern is accepted then the next 4.34 year cycle low would be due February 2013 + or – 9 months. The low thus far came in June 2013.

Tracking cycles is not a particularly easy endeavour, however, patterns do develop that can help with future projections. These are all long-term cycles and those cycles break down into smaller cycles.

What I can take from this exercise is that if as Merriman surmises that June 2013 is an important low and a possible 21-year cycle low then a potential huge up move could soon be getting underway for silver. The huge bullhorn pattern that has developed since the 2001 low has the potential for silver’s next move to move well beyond the $49.50 high of 2008 and even climb to the inflation adjusted high of 1980. The 1980 high of $50 would be just under $120 today.

I have maintained the labelling of the Aden Sisters on the bullhorn pattern. They are a series labelled A, B, C, and D. It is possible that the current D wave is complete. However, silver does need to break that downtrend line that currently comes in at $25. Above $25, it is possible that the D wave low is in. Until that happens risks remain that could see silver make new lows below the June 2013 low at $18.18. The silver inflation chart is shown below. At current levels of about $22, it is noteworthy that silver prices today on an inflation-adjusted basis are lower than they were for most of the 19th century. No wonder precious metals analysts tout that it is silver that you must own.

Source: www.sharelynx.com

Copyright 2014 All rights reserved  David Chapman

General disclosures

The information and opinions contained in this report were prepared by MGI Securities. MGI Securities is owned by Jovian Capital Corporation (‘Jovian’) and its employees. Jovian is a TSX Exchange listed company and as such, MGI Securities is an affiliate of Jovian. The opinions, estimates and projections contained in this report are those of MGI Securities as of the date of this report and are subject to change without notice. MGI Securities endeavours to ensure that the contents have been compiled or derived from sources that we believe to be reliable and contain information and opinions that are accurate and complete. However, MGI Securities makes no representations or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to MGI Securities that is not reflected in this report. This report is not to be construed as an offer or solicitation to buy or sell any security. The reader should not rely solely on this report in evaluating whether or not to buy or sell securities of the subject company.

Definitions

“Technical Strategist” means any partner, director, officer, employee or agent of MGI Securities who is held out to the public as a strategist or whose responsibilities to MGI Securities include the preparation of any written technical market report for distribution to clients or prospective clients of MGI Securities which does not include a recommendation with respect to a security.

 “Technical Market Report” means any written or electronic communication that MGI Securities has distributed or will distribute to its clients or the general public, which contains a strategist’s comments concerning current market technical indicators.

Conflicts of Interest

The technical strategist and or associates who prepared this report are compensated based upon (among other factors) the overall profitability of MGI Securities, which may include the profitability of investment banking and related services. In the normal course of its business, MGI Securities may provide financial advisory services for issuers. MGI Securities will include any further issuer related disclosures as needed.

Technical Strategists Certification

Each MGI Securities technical strategist whose name appears on the front page of this technical market report hereby certifies that (i) the opinions expressed in the technical market report accurately reflect the technical strategist’s personal views about the marketplace and are the subject of this report and all strategies mentioned in this report that are covered by such technical strategist and (ii) no part of the technical strategist’s compensation was, is, or will be directly or indirectly, related to the specific views expressed by such technical strategies in this report.

Technical Strategists Trading

MGI Securities permits technical strategists to own and trade in the securities and or the derivatives of the sectors discussed herein.

Dissemination of Reports

MGI Securities uses its best efforts to disseminate its technical market reports to all clients who are entitled to receive the firm’s technical market reports, contemporaneously on a timely and effective basis in electronic form, via fax or mail. Selected technical market reports may also be posted on the MGI Securities website and davidchapman.com.

For Canadian Residents: This report has been approved by MGI Securities which accepts responsibility for this report and its dissemination in Canada. Canadian clients wishing to effect transactions should do so through a qualified salesperson of MGI Securities in their particular jurisdiction where their IA is licensed.

For US Residents: This report is not intended for distribution in the United States. 

Intellectual Property Notice

The materials contained herein are protected by copyright, trademark and other forms of proprietary rights and are owned or controlled by MGI Securities or the party credited as the provider of the information.

Regulatory

MGI SECURIITES is a member of the Canadian Investor Protection Fund (‘CIPF’) and the Investment Industry Regulatory Organization of Canada (‘IIROC’).

Copyright

All rights reserved. All material presented in this document may not be reproduced in whole or in part, or further published or distributed or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of MGI Securities Inc.