In case you haven't noticed, silver has been on a tear this past month. Check out the graph below, courtesy of StockCharts (to which we are permanently linked on the left of this page under "Silver (chart)"):
If you cannot see the numbers, please click on the link, because StockCharts does a great job with their graphics and you will be able to see everything you need to in good contrast. Even without clearly seeing the numbers, however, you certainly cannot miss the near linear increase on the right of the image. Looks like y = 5.5/35x to me. This covers a roughly six week period from the last week to August through today. The late August price was about $18.00/oz, and silver moved up a massive $5.50 since, or 30.5% (silver hit $23.50/oz, and closed today at $23.22). It is a huge move, no doubt, and is a 13% larger move than the less-huge-but-still-nice spike in gold. See for yourself the gold chart, also from StockCharts:
As you can see, gold is up $200 over the same period, from $1160/oz to over $1360/oz, and closed today at $1347/oz, thus giving gold a gain of over 17% in since the end of August. Of course, silver is quite prone to runs-up, and runs-down. Between mid-March and mid-April of 2006, silver shot up 43%--and then sunk 45% from May to June. Silver also dropped 31% in the month between mid-September and mid-October 2008 during the tumult of the credit crisis, and did this after having dropped from over $21/oz just six months previously. Silver recorded two 30%-plus rallies in the first half of 2009: one, from mid-January to mid-February registered nearly 35%, and the other, from May 2009 to June 2009, registered 33%. The first rally moved silver out of the $11/oz range, and the metal has not returned to that level since. However, the second price rally of 33% from May to June was promptly following by a 28% crash from June to July 2009. Digging back further than 2006 reveals more examples of silver's notorious volatility, especially 2001 and 2004. As for gold, during the above-mentioned 2006 silver rally-top-crash, gold rallied as well, though less aggressively, and also erased it's gains the following month. Likewise, during the fall 2008 credit crisis peak, gold dropped over 25% and traded briefly below $700/oz after having that summer broken $1048/oz. So, all that said, I know that I am not only one who is just a little concerned with this current move. (More on this later.) We've looked at the charts for gold and silver over the last six weeks, so the next obvious question would, of course, be "What about the USDX?" Well, c'mon--what do you think? Here's the US Dollar Index, from StockCharts:
Ouch. That was predictable, unfortunately. While gold-bugs and silver eagles are jazzed at the rallies in precious metals (I know I am, as well as very apprehensive), we also have to look especially closely at that last chart, the USDX. You might have some investments in commodities, gold, and silver, and are therefore pleased with these moves. You might have already figured out that the US economy is in an utter unsustainable path towards disaster, and you've made yourself mentally prepared to shovel dollar bills into the fireplace in Wiemar America, if need be. You might be totally psychologically ready for whatever comes. But are your financially prepared for it? No one is: a dollar collapse would be completely unprecedented and there is no telling what would happen: violence, wars, totalitarianism, or "benevolent" property seizure, illegalization of gold and silver, account confiscation, bank holidays, devaluations. No one knows. For the record, I don't know if any of these things will ever happen, and I hope they do not, but I personally think that the dollar is not built to last and never was. And that dollar connects us all. Look at that USDX chart again: I'm guessing that you are not paid in commodities, and if you are, please don't tell the IRS. You are paid in dollars, and your checking account is in dollars, and your savings account is in dollars, and your retirement plans in dollar-denominated assets (equities or bonds), and your house which you might one day like to sell is in dollars. The only good thing about it is that your debt is in dollars, too. USDX is a measure of value against six other major currencies, and as the dollar falls against these other currencies, import prices increase. Correspondingly, the relative price of US exports falls, which would perhaps be beneficial if the US actually exported anything! To the contrary--the US economy is, quite literally, based on consumer spending, and consumer spending, and consumer spending. You and I spending money is what makes our "economy" work, and is what dominates almost 65% of the national GDP. That in mind,USDX is down nearly 13% since the recent high in June of over 87. Over the last six weeks, USDX is down almost 8%. That means we are out 13% of our spending power in the last four months: are you thinking that all of the sudden, silver and gold continuing up doesn't seem so nice?
In September 22 article, Bob Chapman had this to say on the issue of the USDX: "The dollar, now at 81.32 on the USDX, will fall to 74, then to 71.18, and eventually to 40 to 45...". Since he wrote that, USDX has moved from 81.32 to 77.26 today. Mr Chapman cites two specific levels--74 and 71.18--because these are the two very important support levels: if USDX breaks these levels, then we could be sliding into the long term scenario that Mr Chapman thinks will take USDX "to 40 to 45." Others disagree greatly with him. Here are USDX data going back to 1986, and if you take a few minutes to view them, you'll see what has happened to the relative value of the dollar over, especially over the last year fews of the Fed's loose/cheap-money policy. Mr Chapman specifically cites the 71.18 level on USDX because it was the 14-day relative average of the USDX during the two weeks which bracketed the all time low in USDX, hit in March 2008.
So let's recollect March 2008, shall we? Pretty uneventful, really, expect for the collapse of Bear Stears! Of course, Bear didn't collapse because of the dollar; it collapsed because it was a reckless investment bank that attempted to play $13 TRILLION in games with $11 Billion in chips. Another relevant event which occurred in March 2008 was silver hitting its previous post-1980 high of over $21/oz. The events of the last week include silver eclipsing even that mark, and the metal now sits a 30-year high. Gold, of course, has hit all-time highs several days in a row, and it up week-over-week since the end of August.
It is a bitter pill: as my headline states, one is up and the other is down. Gold and silver strengthen because the dollar deteriorates. But that is the purpose of fiat money--to destroy wealth and annihilate savings and capital. The tables may be set to turn, however. I have no clue--I'd trust Bob Chapman's opinion over my own any day. However, silver and gold look overbought to me, and dollar looks oversold. This is not uniquely my observation, but some say, including myself, that it appears in the very charts I posted on this page. I could be completely wrong, of course, and totally misinterpreting the data.
Below the main price charts above, you'll see a second, smaller box. These are the MACD charts. MACD stands for "moving average convergence-divergence" data. Here they are again from, from silver, gold and USDX, respectively:
Look at the right-most trend. The MACD is a momentum indicator, and like all technicals, it doesn't matter if you believe if everyone else does--particularly when that "everyone else" includes computers in high-frequency trading (HFT) modules that are programmed to buy/sell when certain statistical or technical events occur. Commodities are less subject to HFT, but gold is not a commodity, and both gold and silver are covered by several ETF's and thus have significant exposure to HFT's. I have no idea how much further the MACD can move in gold, silver, or USDX, but in my very humble opinion, gold looks overbought, silver looks overbought, and USDX looks over sold. And that is NOT investment advice!
Here are someone who happens to agree, as well as someone who doesn't, and Dennis Gartman, who is a long term gold bug who thinks gold is not only currently overbought, but "hyper-overbought," and who says he just doesn't "get" silver at all. If anything, in more of my still humble opinion, a pull-back in silver would be great, as it would give me a chance to move in on a dip! I think it would only be a temporary move, because I think both silver, gold, and all "things" on the planet are set to increase in price as all currencies decrease due to central bank theivery, and I think gold and silver are the long term belt and suspenders. That is not investment advice either, but I'd certainly rather have silver than dollars--no contest. The dollars I do have I ought to convert to Arrowhead jugs full of pre-1982 pennies, as with copper at $3.77/lb, penny arbitrage is the perfect dollar hedge as far as I'm concerned.
And yeah, I'm that crazy: you can imagine me a bunker with Arrowhead jars of pennies all around. I'd rather have copper than paper any time.