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There's a Big Reason To Keep Your Eye on Silver
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By Editorial Staff
Fri, 15 Aug 2008 15:15:00 ET |
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Bob Prechter called a top in both silver and gold back in March 2008, and, since then, these two precious metals have indeed gone down. Silver prices have fallen by one-third just since March. Our precious metals analyst, Mike Drakulich, has been glued to his computer watching the falling action in silver. Here's part of what he wrote to subscribers on Thursday, August 14:
"Incredible! Silver just printed 12.20, now surpassing the 50% retracement of its entire bull market from the 4.01 area to highs near 21.35! … Note that while gold is nowhere close to a 38% correction (near 738) of its entire bull market from the 1999-2001 lows, silver has now gone below its 50% retracement. It is amazing that silver is already at these levels…"
Silver is on the move. Get more detailed analysis from Mike Drakulich, Elliott Wave International's Senior Metals Analyst. Click here to subscribe to Metals Specialty Service.
Watching a market rise or fall dramatically does take the breath away. Yet Bob explained why silver's moves are important not only to investors and traders but also to the U.S. economy as a whole. Here's an excerpt from his March 2008 Elliott Wave Theorist, where he called for a top in silver.
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Excerpted from The Elliott Wave Theorist, March 2008
Silver has met its resistance line on arithmetic scale, and bulls outnumber bears so lopsidedly that the 21-day average of daily readings has reached 91 percent and the 10-day average 95 percent, while the peak daily reading hit an amazing 98 percent. The wave count is nearly satisfied, although ideally it should end after one more new high to complete wave 5 of (5) of 5. A slight new high would give this top the same profile as that of 2006.
If this analysis of silver is accurate and silver does peak this year and begin a bear market, gold is likely to go down with it. As we have already seen, gold tends to perform less well during economic contractions, so the economy is likely to peak along with gold. This conclusion fits our long-standing observation that silver is an excellent predictor of recessions: When it goes down substantially, recession follows. Despite the recent torrent of bad news, the economy has yet to go into recession. So all this analysis fits our view: The economy is on its last legs, and the precious metals are nearing a top right along with it.
Figure 3 [not shown] shows how this five-wave bull market in silver fits into the larger picture:…This chart also updates our silver cycles from two years ago. They have continued to work, as the 5-year cycle coincided with the low in August 2007, and the 10-year cycle still points to a low in [Bob includes a specific time frame]. This is also a projected year for a major low in the stock market. So everything still points to a deflationary collapse….
Tags: silver futures, recession