Friday, 16 October 2015

Silver, the world's slowest bubble

More Essex FTA coursework. The title refers to the last paragraph.

This is a very weak instrument. A friend of mine once called it the world's slowest bear market.
XAGUSD is in a downtrend. It crashed on Aug 24th, unlike XAUUSD which rallied. In fact it made a 6-year low of $13.98 on that date. It is not a safe haven metal like gold, and fundamentally, production is increasing whilst demand decreases[1]  In the short term, it will probably rise in the current channel to $16.50 but then come down again.

How far down can it go? Looking at the 20 year chart, there does appear to be some support around here, and perhaps this $14 price is a permanent low. I would however, wait until the price hits $14 again before buying (a double bottom). In the meantime, allow the metal to creep to the top of this downward channel and short it. Longs to get to the channel point are possible, as the metal moves so slowly, but I would not recommend.

If the price breaks down again, due to fundamentals, below, say $12.50, then after some resistance around the $8, it is perfectly feasible for the metal to hit the price it was for the last 20 years of the last century, viz. $4.50 per ounce.
Remember mining and recycling technology are the enemy of metal prices. And technology only goes in one direction.
Incidentally, the 20 year chart for silver looks a bit like the Rodrigue bubble chart. World's slowest bubble which does appear to have reverted to mean.


David Atherton
16 October 2015

[1] https://www.silverinstitute.org/site/supply-demand/silver-production

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