Daily Analysis of Gold and Silver Markets

Miles Franklin sponsored this article by Gary Christenson. The opinions are his.

Bull markets make higher highs and higher lows. Bear markets make lower lows as they progress.

It makes sense that bull markets have many up days and a few down days, and that the average up move is larger than the down moves.

It makes sense, but it’s dead wrong!

If you want to skip the analysis, here are the conclusions:

CONCLUSIONS:

• Bull markets have slightly more up than down days.

• Bear markets have larger daily down moves than up moves.

• Silver and gold are due to correct as of August 9, 2019. Maybe…

• In the long term, metals prices will rise far higher as debt-based currencies race toward zero value.

• Our emotions regarding bull and bear markets are not consistent with the daily data, as described above.

• If the price of gold is the inverse of confidence in central banks, look for much higher gold prices over the next five years.

ANALYSIS:

Examine the monthly charts for the S&P 500 Index, gold futures and silver futures since the year 2000. We see:

For the SPX:

a) Bull market from October 2002 to October 2007

b) Bear market from October 2007 to February 2009

c) Bull market from February 2009 to July 2019.

For Silver:

a) Bull market from November 2001 to April 2011

b) Bear market from May 2011 to December 2015

c) Bull market from December 2015 to August 2019.

For Gold:

a) Bull market from April 2001 to August 2011

b) Bear market from August 2011 to December 2015

c) Bull market from December 2015 to August 2019.

DAILY DATA BACK TO YEAR 2000:

• For the SPX, the 2002—2007 BULL market had 55.4% up days and 44.6% down days. The average down day was slightly LARGER than the average up day.

• For the SPX, the 2007—2009 BEAR market had 49.7% up days and 50.3% down days. The average down day was 25% LARGER than the average up day.

• For the SPX, the 2009—2019 BULL market had 54.9% up days and 45.1% down days. The average down day was slightly LARGER than the average up day.

S&P 500 Summary:

In the two major bull markets of this century, the SPX averaged about 11 up days for every 9 down days. The average down days were larger than the average up days. Eleven steps forward and nine steps backward sounds unimpressive, but the SPX rose from under 700 to over 3,000 during the latest bull market.

• For Silver, the 2001—2011 BULL market had 56.4% up days and 43.6% down days. The average down day was slightly LARGER than the average up day.

• For Silver, the 2011—2015 BEAR market had 48.5% up days and 51.5% down days. The average down day was 10% LARGER than the average up day.

• For Silver, the 2015—2019 BULL market had 50.5% up days and 49.5% down days. The average up day was slightly LARGER than the average down day.

Silver Summary:

During the large bull market from 2001 to 2011 when silver rose from $4.01 to over $48 it averaged less than four up days for every three down days, and the average down day was larger than the average up day. Over 9.5 years, silver prices exceeded ten times their initial price and did so with daily closes going up only 1.29 times as often as they fell. Surprising!

Gold statistics for daily moves from April 2001 to August 2011 are like those of silver.

WHY IS THIS IMPORTANT?

• Markets move up and down. Bull markets seem to move relentlessly higher, but that is not true.
• Bull markets, whether the S&P 500 Index, gold or silver, have almost as many down days as up days. In bull markets daily prices move higher about 20% more often than they move lower.
• Bear markets have only slightly more down days than up days.
• The average move during bear market down days is 10—25% larger than the average daily up move. The bear market damage comes mostly from larger down days, not from more down days.

Emotionally Speaking:

• Bear markets feel like extended sequences of down days interrupted by a few corrections upward. The daily data shows that is NOT accurate for the SPX, gold or silver.

• Bull markets feel the opposite. They seem to have many up days and a few down days. Also, not accurate…

But In Fact:

• Bull markets have a slightly larger number of up than down days. Average daily down moves are often larger than the upward moves. Many downward corrections occur.

• Bear markets typically have about the same number of up and down days. However, the average down day is larger than the average up day. Many rallies occur in long-term bear markets.

WHAT ABOUT SILVER AND GOLD?

• Ignore your emotions when considering up and down days. Even in raging bull markets there are many down days. Remember, less than four up days to three down days is typical for silver bull markets. There will be many down days in bull markets.

• Silver and gold prices have moved higher since May of this year. One can point to many reasons, but high on the list must be worry about the quality of and continuing value of debt-based currencies issued by increasingly desperate central banks.

• If economies were strong, would over $15 trillion in sovereign debt that “pays” negative interest rates be needed?

• If central banks were effectively managing economies and currencies instead of enabling wealth transfers to the political and financial elite, would they have created an “everything bubble,” and near zero or negative interest rates?

• Because central bank motives and management are increasingly suspect, some investors want to exit debt-based currencies to protect their assets with real money—gold and silver.

ARE SILVER AND GOLD IN A NORMAL BULL MARKET NOW—August 2019?

• Difficult question. Consider the huge move in silver from November 2008 to April 2011. During that time silver rose from less than $9.00 to over $48.00. It rose on 360 days and fell on 257 days. The up to down days ratio was only 1.4 to 1.

• Silver prices bottomed on May 29 of this year and rose (so far) to August 7. During that time silver rose on 35 days and fell on 15, for an up to down ratio of 2.33 (VERY large ratio).

• That data period from late May to early August is short, but it looks like the start of a powerful bull market.

• It’s clear that silver and gold are strongly over-bought as of August 9, and daily sentiment is too high. Corrections often begin from such conditions. I expect a short-term price correction from here… but who knows.

• Silver and gold are showing remarkable strength. There are many reasons silver and gold should rise much higher. Think crazy politics, out-of-control spending, unpayable debt, wacky central bank policies, imploding bubbles, low interest rates, trade and currency wars, shooting wars, and the list goes on.

From John Mauldin:

“…he [Larry Kotlikoff] argues that our financial system was built to fail, failed spectacularly, and was then rebuilt to die another day.”

“another financial collapse is a matter of when, not if…”

From Mike Shedlock:

“The Fed desperately needs to keep credit expanding or the economy will collapse. However, it’s an unsustainable scheme.”

From Alasdair Macleod:

“Given the rapidity with which the global economy is now declining, we will be lucky if a credit crisis leading to deeply negative nominal rates doesn’t happen later this year.”

CONCLUSIONS:

• Bull markets have slightly more up than down days.

• Bear markets have larger daily down moves than up moves.

• Silver and gold are due to correct as of August 9, 2019. Maybe…

• In the long term, metals prices will rise far higher as debt-based currencies race toward zero value.

• Our emotions regarding bull and bear markets are not consistent with the daily data, as described above.

• If the price of gold is the inverse of confidence in central banks, look for much higher gold prices over the next five years.

Miles Franklin is happy to recycle dollars from stocks into real money. Don’t stand at the station while watching the train pull away. Call 1-800-822-8080.

Gary Christenson