The events of the past few months have been dominated by the decision of the Federal Reserve to undertake a further, massive easing. Since the emphasis will not be on lowering interest rates (because they are effectively zero), it is being called a quantitative easing (an easing by virtue of the quantity of reserves which the Fed pumps into the banking system) and has acquired the name QE2 (quantitative easing 2). Immediately, gold and silver broke into new all-time highs, the dollar collapsed against most foreign currencies, and many individual commodities started to race to the moon (which Ben Bernanke describes as a threat of deflation).
At any rate, this gives us the opportunity to make some observations on the gold and silver charts and to learn something about the current market and acquire some skill in charting technique. (Note, my newsletter, the One-handed Economist, shifted from gold to silver in the issue of Sept. 17, 2010, and the profits are coming in.) Dear Mr. Bernanke, I can tell you what is happening as a result of your recent easing, and it certainly is not “deflation.â€)
Here we see the ascending triangle in silver (weekly basis) which formed over the past year. It broke out early in September. Those who have studied the precious metals over this major term bull move have noticed that the triangle has been a very popular chart pattern. And for a given chart pattern to dominate in a given market is very normal. Each market is made up of traders, and every trader has his premises about how the market will act. As these premises unfold in trading action over the course of a bull or bear market, we get the same kind of chart pattern repeating over and over, and that chart pattern becomes characteristic of that bull/bear market.
A triangle is a continuation pattern. It has 4 turning points. The first and third are connected to form the top line, and the second and fourth are connected to form the bottom line. The above silver chart is a special case where the top line is horizontal. In a more common triangle, the top line slants down, and the bottom line slants up. Thus the market has one aspect which is bearish and one aspect which is bullish. In short, a triangle is a battle between the bulls and the bears. It typically occurs after a long move in one direction (say bullish) and represents a pause while the market makes up its mind what to do next.
The triangle is called a continuation formation because experience has shown that the pause usually continues in the same direction as the original move. The triangle is often called a coil because the small, balanced moves which make it up are followed by an explosive move. It is like a snake coiled to strike.
The ascending triangle above is a special case. Selling comes in at points 1 and 3, at the same level. And buying comes in at points 2 and 4, at a higher level. That is, the buyers are more aggressive than the sellers. This is a tip-off that the break-out, when it occurs, will be to the upside.
The price objective of a triangle, as opposed to that of most other chart patterns, is not a single point. It is a line. Through point 1 (the upper left hand corner) one draws a line parallel to the bottom line. This is the price objective line. It tells us that, at a minimum, the chart will get up to this line. It may go above it. However, if it is going to go above the minimum price objective line, it will back off and have a small reaction first. The triangle does not tell us when the chart will reach the price objective line, but once we reach it, there will be some type of decline, whether short term or long term.
For those of you who are wondering just how far this current move in silver will carry, the price objective line offers a clue. It is currently closing in on $26. So we must consider the possibility that there will be a short term reaction in silver, which will take us back to the breakout point ($20-21).
If we look at the bigger picture in silver, we see another ascending triangle (or almost ascending triangle). Look at the power of the breakout above the March 2008 peak of $21. Two points occur to the experienced chartist. One, silver is about to make a powerful move to the upside. And two, for the short term and in the minds of those people who believe in a fair price silver has gone up too far, too fast. Silver has spent most of the past 2½ years in a small range just under $21. To most traders, $21 silver is the high side of the fair price. If you ask one of these people just what is the fair price for silver, he would say, “Well, I don’t know exactly, but it is certainly not $26. $20 or $21 is more fair.
So if we see silver hit its price objective line and then give a few short term sell signals, this will tell us to expect a short term decline. The larger chart tells us that we have gone too far, too fast and that a pull back to the top line of the triangle is in order. In other words, the last sellers will be those who believe the fallacy of the fair price and think that the fair price is about $20-$21. When these people have done their selling, the way will be clear for the next bull phase.
An interesting situation is developing and can be seen by comparing the 1 year charts of both gold and silver. Normally the two precious metals move together, but starting in late August there is a significant disparity. In its entire bull move since the Abelson low in late July, gold is up about 15%. But despite starting a month later silver is up 35%. This is, particularly in the minds of the short term traders who believe in the fallacy of the fair price, too far and too fast. Silver is too far above its fair price.
We can wait for it to hit the price objective line from the (1 year) ascending triangle. At that point, I will probably look for one or two bearish signals before deciding to step aside. (I will not go short gold or silver as long as the major term bull market is in place.) My objective will be to play for a return to $20-$21, and if this comes about, it will be one of the great buying opportunities of the decade.
And what will happen to gold during a short term reaction in silver? Probably not too much. It has had a much smaller run-up, has no specific chart pattern with a price objective and ought to pick up support from its June high a little above $1,250. True-blue precious metals buffs might just switch from silver to gold and see what happens.
My newsletter, the One-handed Economist, is issued fortnightly (every 2 weeks), dated Friday and costs $300 per year. Above is my Model Conservative Portfolio, which started with $100,000 at the beginning of the century and is up 146% over 11 years. The average U.S. equity fund is up 9% over the same 11 years. If you want advice on the financial markets, the above is an indication of the type of advice you get from the One-handed Economist. You may subscribe via Pay Pal by visiting my web site, www.thegoldspeculator.com and clicking the Pay Pal button. Or you may subscribe the old fashioned way by sending $290 ($10 cash discount) to: The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055.
Thank you for your interest.
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PMs are still marching to the beat of the dollar – just like the other markets. everything will go up and down according to the value of the dollar. The DOLLAR is what we need to watch – not PMs (IMHO).
the purchasing power of silver coins will remain stable throughout time while the purchasing power of paper fiat money will crash, i.e. weimar and zimbabwe.
the handwriting is on the wall in huge relief. . . . . .
Everyone keeps talking about a pullback. The contrarian in me wants to say because of that we won’t get one.
I’ve been watching silver/gold for 2 1/2 years now. I know that’s a pittance compared to most experts and investors, but I have seen things in the daily charts I have never seen before. Those of you who have been watching know what I’m talking about. How many think the pullback is going to happen? I admit it would be perceived as “healthy” but this feels different this time.
Silver has been my favorite since the early 80’s. If you are just getting around to thinking about precious metals; you may want to review the status of your other preps first (food, water purification ability, ammo, weapons, toilet paper, etc) prior to jumping on this wagon. In the immediate aftermath of a true SHTF situation, nobody in their right mind is going to be trading food or anything else that they really need to survive for either gold or silver. It will only be after things shake out a bit and stabalize somewhat that a barter/black economy comes into play and gold and especially silver is again used in commerce.
Hit the garage/moving sales in your area every weekend. You can frequently find single pieces of sterling silver flatware available on the cheap. Sterling silver is 92.5% pure silver.
God Bless and good luck to all.
As long as I can find people willing to take FRNs for silver coins, Â I will make that trade. Â Even better is trading FRNs for gold.
Paper price does not matter anymore……just get the silver/gold.
Gold/silver, priced in FRNs, are going to the moon.  The time is coming soon, when you will not accept any amount of FRNs,  for your silver…….imho
Would you trade a 100 trillion zimbambwe dollar, for a silver coin? Â Me neither.
LostInMO is right – paper price does not matter any more. But people should get the essentials first and foremost…
Just wondering how much silver the average “prepper” owns. 100 oz’s, 500 ozs, 1000 ozs? I have just shy of the last number buried at my bug out location. I have to assume I have more than 99% of the population??? no?
I’m currently sitting on about 300 oz’s.
Those with a lot of gold and silver will be able to buy a house relatively cheaply after the collapse. But they will not help you survive it.
Focus first on things that you need to maintain your lifestyle. Invest in generating your own power. Set up a way to catch rain water and purify it for drinking. Without those two things gold will make you miserably rich.
The best savings account would be a lifetime supply of everything you use and will continue using for as long as you live. If you don’t have enough of something, it may become unavailable. It could be something as simple as disposable razors. A $25 dollar investment will buy enough to last several years if you are like me. Why not go out and get 25 bottles of shampoo instead of buying that ounce of silver? Or spend the $25 on bars of soap, toothpaste and brushes. Anything you might use. Dish soap. Disposable styrofoam plates could be handy in a water restricted environment. You can get 7 packs of 100 for the cost of that ounce of silver.
That list can go on forever and it would never be the same for everybody. Just figure out what makes your life easier and invest in those things that make it possible. The prices are sure to skyrocket and you may not even be able to get them.
And don’t forget about the other money metals. Copper and Nickel. Save every pre 1982 penny you can find, and every nickel that comes your way. Their value cannot be hyperinflated away and the melt value is already more than the current face value for nickels, and over 2.5 cents for a copper penny.
You should prepare for a life where everyone is poor, rather than trying to prepare yourself to be rich later on. I am reminded of a quote from someones grandmother about the great depression. She said “We had everything we needed but money”.
If you have everything you need, you don’t need money.Â
She said “We had everything we needed but moneyâ€.
If you have everything you need, you don’t need money.
Â
Hmm…not QUITE true…..lot of folks lost the family farm for LACK of a piddly little amount of property tax money.  THAT is why I started setting some real money aside.
@ “gods creation” yeah yeah yeah, most here are WAY beyond the basics, save your breath.
I’ll still be happy if it drops to $20 – $21. I will have still made money and it will still be safe. It’s fun when it’s this high. My wife has been getting paid in silver for several years.
Never compare down or in %. Think bell curve. People over there, understand it.Â
I like the way you think MO. They are still giving it away.Â
No one owns anything, we just get to use it this time around.Â
silver is hyped up junk. it will soon crash to almost nothing as the republicans will win yhe election. then the confidence of the world in america will resume. leaders boehner, mcconnel and romney will restore worldwide confidence in america and in the dollar. then the economy wikk reassert itself and jobs will come back to america under republican leadership. the tbush tax cuts will be made permanent and the rich big business leadership will use that money to hire american workers.
god bless george bush and our valiant fighting forces.
@ mushroom: ‘We are all born ignorant, but one must work hard to remain stupid.’ -Benjamin Franklin
Mushroom….why are you here?
Why do you waste your time? It is evident that you spend a great deal of your time reading and posting here….but I must ask WHY if you feel everything will iron out after November?
Most like me, come here to learn something. I learn how and what to prep and how to look for impending signs of the breaking point. If you are not here to learn…..then you must just have ENTIRELY TOO MUCH TIME ON YOUR HANDS.
Â
My guess is you are hourding tons of metal and rice. I bet you are the biggest MEGA-prepper of all but I’m just not sure why you are trying to throw the rest of us off?Â
http://www.youtube.com/watch?v=dU7nG3KvZDA
For mushroom, the prepper ….. .
Cold Dead Hands,
Not everyone is as prepared as you are. Most is not all. I would suspect that new people arrive here every day and many may not be fully awake yet. I try to post to help those people.
I would go so far as to bet that most of the people here think it is a better investment to buy silver than it is to buy something you will definitely NEED and use later.
If things get to the point where silver or gold is required to purchase something, there will not be much to purchase.  Your standard of living depends on things, not the money that buys them.
You can continue to consider yourself an advanced prepper who has no time for those getting started or making mistakes.
I will continue to do my best to help both those further along in the process than me, and those getting started. If that is wasted breath to you, …
@ Tina –
Mushy is just writing in satire. Think of it as one big sarcastic post.
Can anyone tell me where I can put  retirement savings into silver
also are commodities safe?
“If things get to the point where silver or gold is required to purchase something, there will not be much to purchase.  Your standard of living depends on things, not the money that buys them.”
Dentists, vet`s, farmers, ranchers, MD will trade not in bullets,
canned food etc. That will be available for them. And YOU will protect them, with your guns. When they ask: what you have to trade for my services, if the aswer is ‘gold’ you`re the first in line. Barter will kill the society, as we know it. Savers will always look for wealth presevation. And don`t forget that rationing basic goods always came with rising prices as a first step. When food will no longer be produced by local growers, due to theft or high taxes, soon basic needs (tap water, police service, electric grid, med. services) will be available to the ‘highest bidder’.
Everyone will try to ‘cash out’ the FRN`s for something tangible. Skills will prevail, college grad`s in arts, history will go back to onion picking, with debs still pending. Gold holders stand a chance, FRN holders or fixed income`ers will be hit hard, those in debt …. crushed. QE2 will smash the US$, both in foreign trade and in the US.
Uhh …. Hanlon’s Razor: Never attribute to malice that which is adequately explained by stupidity.
Written not for mushroom.
Time to back up the truck this morning if your holding on to paper or digits that you’ve been waiting to unload.Â
Paper digits, only two buckets, no CC`s, no mortgage.
“The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payment on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title.” Anonymous.
PS: http://jessescrossroadscafe.blogspot.com/Â . An sharp Expat
 posting the quoted anon above.
Read jesse`s posts from time to time. Ohhh, feed the mushroom, storing in dark places is not enough
Comments…..Gods Creation…….stocking up on shampoo, toothpaste, etc. It can be done almost for free by using coupons and sales at stores like Walgreens, CVS and RiteAid!! Check out the couponing blogs, it is fun to save money and stock up!!
To God’s Creation:
You wrote, “Those with a lot of gold and silver will be able to buy a house relatively cheaply after the collapse. But they will not help you survive it.”
How much should one have in gold and/or silver “to buy a house relatively cheaply?” 500 oz of silver? 10 oz of gold?
@gods creation…the problem with posters like you is you TRY to sound authoritative with advanced wisdom that most don’t have, yet you know less than most here, and even less about what actually will happen.
None of us know for sure what will happen, but trying to sound like you have all the answers is arrogant and UNHELPFUL to those trying to learn.
The best plan is to prepare for ALL scenarios, and that includes protecting your wealth by buying PM’s because out of all likely scenarios, TEOWATAKI is the least likely, while a serious devaluation of the FRN dollars is high on the likely list.
There has never been an event where ALL forms of money have disappeared or worthless. I suggest you read this book to see what a REAL SHTF scenario is like.
http://www.amazon.com/Modern-Survival-Manual-Surviving-Economic/dp/9870563457/ref=sr_1_4?ie=UTF8&qid=1287503674&sr=8-4
The only protection for this is to put your paper into something that will be recognized as “money” or exchanged for “money” when the dust settles.Â
A lifetime supply of razors isn’t going to be good for anything other than to ensure a clean shaven face. Telling people to put ALL their money into a lifetime supply of consumer goods is NOT wise advice, Balance is the key.
@ Tina…shroom-head is a sarcastic libturd who thinks he is being cute. His hero is probably robert gibbs or someone of his ilk.
Comments…..
Gold and silver don’t have a shelf life.   As such they have their place amongst those things that do.
RH