Best of the Week
Most Popular
1.Gold Price Trend Forecast, Where are the Gold Traders? - Bob_Loukas
2.Stocks Bear Market of 2017 Begins? Shorting the Dow At its Peak! - Nadeem_Walayat
3.Betting on President Trump Leaving Office Early, Presidency End Date - Betfair Market - Nadeem_Walayat
4.Why Stock Market Analysts Will be Wrong About 2017 - Clif_Droke
5.Is This The Best Way For Investors To Play The Electric Car Boom - OilPrice_Com
6.Silver Price 2017 Trend Forecast Update - Video - Nadeem_Walayat
7.Gold Price Set For Very Bullish 2017, Trend Forecast - Austin_Galt
8.10 Things I learned From Meetings With Trump’s Transition Team - - John_Mauldin
9.How Investors Can Profit From Trumps Military Ambitions - OilPrice_Com
10.Channel 4 War on 'Fake News', Forgets Own Alt Reality Propaganda Broadcasting - Nadeem_Walayat
Last 7 days
Gold’s Fundamentals Strengthen - 18th Feb 17
The Flynn Fiascom, the Trump Revolution Ends in a Whimper - 18th Feb 17
Not Nearly Enough Economic Growth To Keep Growing - 18th Feb 17
SPX Stocks Bull Market Continues to make New Highs - 18th Feb 17
China Disaster to Trigger Gold Run, Trump to Appoint 5 of 7 Fed Governors - 18th Feb 17
Gold Stock Volume Divergence - 17th Feb 17
Gold, Silver, US Dollar Cycles - 17th Feb 17
Inflation Spikes in 2017, Supporting Gold Prices Despite Increased Odds of March Rate Hike - 17th Feb 17
Roses Are Red... and So's Been EURUSD's Trend - 17th Feb 17
Gold Trade Note Sighted - 17th Feb 17
Gold Is Undervalued Say Leading Fund Managers - 17th Feb 17
NSA, CIA, FBI, Media Establishment 'Deep State' War Against Emerging 'Trump State' - 16th Feb 17
Silver, Gold Stocks and Remembering the Genius of Hunter S. Thompson - 16th Feb 17
Maps That Show The US’ Strategy In Asia-Pacific - 15th Feb 17
The Trump Stock Market Rally Is Just Getting Started! - 15th Feb 17
Tesco Crisis - Fake Prices, Brexit Inflation Tsunami to Send Food Prices Soaring 10% 2017 - 15th Feb 17
Stock Market Indexes Appear Ready to Roll Over - 15th Feb 17
Gold Bull Market? Or was 2016 Just a Gold Bug Mirage? - 15th Feb 17
Here’s How Germany Buys Time From China - 15th Feb 17
The Stock Trader’s Actionable Guide to Trump - 15th Feb 17
Trump A New Jacksonian Era? The Fourth Turning (2) - 14th Feb 17
Stock Market Yet Another Wall Street 'Witch's Brew' - 14th Feb 17
This Is Why You Don’t Own A Lot Of Stocks - 14th Feb 17
Proposed Tax Reforms Face Enormous Headwinds - 14th Feb 17
BBC Inside Out Tesco Rip off Offers - Determined to Lose Big Spend Customers! - 13th Feb 17
Is the UK An Economy Built on Debt? - 13th Feb 17
Stock Market VIX Cycles set to Explode in March/April 2017 – Part 2 - 13th Feb 17
Stocks At Record Highs - Will Uptrend Accelerate? - 13th Feb 17
US Dollar: 'Rumors of My Death are Greatly Exaggerated' - 13th Feb 17
Is This The Top Commodity Play For 2017? - 13th Feb 17
Trump a New Jacksonian Era? - 13th Feb 17
Stock Market at High Tide - 13th Feb 17
Channel 4 War on 'Fake News' Ends - The New News Age - 12th Feb 17
Uptrend in Silver (XAG/USD) Continues to Strengthen - 11th Feb 17
Greece Debt Crisis Outrageous Malevolence - 11th Feb 17
SPX Stock Market 1-year Anniversary New Highs - 11th Feb 17
Gold and Gold Stocks Hit Upside Targets. Now What? - 11th Feb 17
Moving Stock Market Targets: Investors Need to Discriminate! - 11th Feb 17
Sheffield Trees Felling Crisis, Police Dawn Raids and Arrest, Amey £2bn PFI - 11th Feb 17

Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

Silver Price Cycles, Forcasting the Next Tops and Bottoms

Commodities / Gold and Silver 2013 Jun 10, 2013 - 04:20 PM GMT

By: DeviantInvestor

Commodities

Silver prices peaked in April 2011 and dropped about 60% over the next 25 months. Sentiment by almost any measure is currently terrible. Few are interested in silver; most have lost money (on paper) if they bought in the last two and one half years, and the emotional pain seems considerable. It reminds me of the years after the NASDAQ crash in 2000.

So will silver drop under $15 or rally back above $50?


To help answer that question, I examined the chart of silver for the last 25 years and identified several long-term cycles. Then I constructed a spreadsheet that attempted to model the price of weekly silver based on those cycles and a few assumptions.

Assumptions

  • Use only long-term cycles – a year or longer.
  • The weight assigned to each cycle is approximately proportional to its length. A 200-week cycle should be approximately twice as heavily weighted as a 100-week cycle.
  • This is NOT a trading vehicle but a long-term indication of reasonable price projections based on past relationships. Those past relationships may or may not continue, even if they have been valid for over 20 years.
  • Keep it simple. Do not over-complicate the model or aggressively “curve-fit” it.
  • Prices are assumed to rise more slowly than they fall, so 62% of the cycle is related to the rising portion of the cycle, and 38% of the cycle is related to the falling portion of the cycle.

Data

Low-to-Low cycles: 65 weeks, 72 weeks, and 234 weeks
High-to-High cycles: 102 weeks
Exponential growth: 1/1/1990 – 6/30/2002: no growth – 0.0%/year
  6/30/2002 – present: 21% per year, calculated weekly

Process

Find the beginning dates (lows) for the 65, 72, and 234 week cycles, and assign those beginning dates an index value of -1.0. Proportionally increase those index values from -1.0 to +1.0, and then reduce those index values from +1.0 to – 1.0, and repeat for each low-to-low cycle. Use the beginning index value on the 102-week high to high cycle as + 1.0. Extend the proportional increases on all time cycles from -1.0 to + 1.0 so that period takes 62% of the cycle length.

Assign each cycle a weight approximately proportional to the cycle length. Use a beginning value and calculate the exponential increase (0% or 21% per year) for each week, and then add or subtract the percentage changes for each weekly time cycle. Adjust the cycle index weights to obtain the best visual fit on a graph of actual silver prices versus the calculated price of silver.

What Could Go Wrong?

  • The exponential increase might not continue from 2013 forward. I doubt it, but it is possible. See Caveats.
  • The cycles, although relevant for over 20 years, might be less relevant from 2013 forward.
  • The calculated price was “curve-fit” to the actual prices, and that “curve-fit” result might be less accurate from 2013 forward.

Results

Statistical correlation over the last 20 years is about 0.95. The calculated silver price is generally consistent with the actual silver price, even though occasional large variations are clearly evident.

Highlights

Calculated low: 2/4/05 at $4.96 Actual low: 5/7/04 at $5.60

Calculated high: 3/17/06 at $13.33 Actual high: 5/12/06 at $14.24

Calculated high: 5/4/07 at $18.13 Actual high: 3/14/08 at $20.66

Calculated low: 12/12/08 at $8.15 Actual low: 10/24/08 at $9.30

Calculated high: 3/2/12 at $42.98 Actual high: 4/29/11 at $48.59

Calculated low: 5/10/13 at $23.32 Actual low: 5/17/13 at $22.25 (actual weekly low, so far)

The Future

This simple model, which uses only four cycles and an exponential increase, indicates that a low in the silver price was expected approximately February – July 2013 and that the next high is expected approximately Mar – October 2014 in the $50 – $60 range. Further, the model suggests that a silver price of $90 – $110 is possible in the September 2015 – March 2016 time period.

Caveats!

There are many. This is not a prediction, it is simply a projection based on the entirely reasonable, but possibly incorrect, assumption that silver prices will continue to rise about 20% per year, on average, and that these four cycles will push actual prices well above and below that exponential growth trend.

Why will silver prices continue to increase? Our current monetary system depends upon an exponentially increasing debt and money supply. It seems likely that the US government will continue to run massive budget deficits and thereby increase total debt. In addition, the central banks of Japan, the EU, and the US will continue to monetize debt and increase the money supply to promote asset inflation and to overwhelm the deflationary forces in their respective economies. Silver supply increases slowly, the demand increases much more rapidly, while each Dollar, Euro, & Yen purchase less, on average, each year. It seems quite reasonable to expect that silver (and gold) prices will increase substantially from their current low level. Read: Silver – A Bipolar Roller Coaster.

Timing

The model was basically correct (over the last decade) on timing and price with some large variations. Clearly there are more factors driving the price of silver than four simple cycles. Those political, emotional, and economic factors will push the price higher or lower, sooner or later, than the model indicates. Regardless, it has some value indicating the approximate price and timing for long-term highs and lows in the price of silver.

Use it while appreciating its limitations. Read: Back To Basics: Gold, Silver, and the Economy.

GE Christenson
aka Deviant Investor

If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail

© 2013 Copyright Deviant Investor - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife