Silver Price Projections Into 2013-2014
I availed myself of netdania‘s convenient (and free) charting services to produce the 10-year silver spot, monthly chart shown below. It is scaled logarithmically in order to equalize percentage changes in price—i.e. a 100% move of $1 to $2 displays on the same scale as a move from $5 to $10.
Consider the peaks in 2002, 2004, 2006, 2008, and 2011 (referenced by the yellow arrows). Notice that for the first 6 years from 2002 to 2008, silver was producing price cycles every 2 years. Also, notice that from the trough (bottom) to the peak in each cycle the difference was generally a double. That is, from the 2003 trough of $4-ish to the peak in 2004 of $8-ish it’s a double, then from the 2005 trough of $7-ish to the peak in 2006 of $14-ish it’s another double, finally from the 2006-2007 trough of $10-ish to the peak in 2008 of $20-ish it’s once again a double.
Had this pattern continued in the 2008 through 2010 period, we would have gotten a peak at around $34-$36 from a $17 to $18-ish trough for another double. However, the 2008 financial crisis came and cost silver a lot of upward momentum. It took all of 2009 and 2010 to regain it and then produce another peak in 2011. By then, a year late in arrival, the peak was higher at $48-ish.
Given these observations, what can we project going forward? I will suggest two possible scenarios.
- Optimistic. If the low of $26-ish in December of 2011 is not exceeded, silver produces a pattern similar to 2008-2011, where a double from $26-ish to the $52 level is achieved in late 2012 or early 2013, then a pullback no worse than $42 (i.e. a 38% Fibonacci retracement), and finally a sustained run begins in late 2013 resulting in another peak in early 2014 at around $84 (i.e. a double from $42) to match the peak trend going all the way back to 2002 (i.e. the trend line hitting the peaks in 2002, 2004, 2006, 2008, and 2011 as shown in the above chart).
- Pessimistic. A Lehman-style financial crisis occurs this year which crashes silver below $20 and it takes a full year to recover the momentum back to the mid-$30s. A run over $50 would not occur until the first half of 2014, if at all. In technical terms, this view suggests a broken major trend and a reversion to a longer term mean beyond the last 10 years.
The $50 price level has huge technical significance, since it was the all-time high in 1980 and it became resistance in 2011, followed by major pullbacks on both occasions. The next time we get there, the $50 price level will offer a lot less resistance and the pullback will not be as extreme. If it occurs in early 2013, then we’ll see a spike over $50 to the $52-ish target price and then trade below $50 for several months before resuming the climb. But, if it happens in late 2013 or early 2014, then the run over $50 will be explosive, similar to what occurred in late 2010 to early 2011.