My Immediate-Term Silver Prediction
I’m not a man to make precise predictions in price, and more so in time, however I will attempt to do so now.

In retrospect our silver call has done phenomenally. Our August 2006 entry is up almost 45% and our prediction that the next rally would begin in early September wasn’t all that naive.

I just found it quite interesting that while many proclaim the strength of the precious metals for months such as September and October, the month of November has proven to have even more strength overall. For instance while many months may contain advantages through the ability to buy on dips, November seems to be a relatively smooth and less volatile upside month.
During the rally that began in September 2005 for instance, the numbers came in as follows*:

June -5.3%
July +1.4%
August -7.5%
September +8%
October +5.4%
November +10%
December +6%
January +11%
February -1%
March +20%
April +26% to peak (followed by a 14% decline)
May +7% to peak (followed by a 13% decline)
*all numbers are from month beginning to month end.

An interesting but simple pattern emerges: a strong month followed by a weak month.

Now, check out this year’s streak:
June -7.5%
July +4%
August 7.7%
September 12.5%
October 5.5%

Two trends are relevant in the sense that firstly, both rallies, although separated by a 17-month consolidation from peak-to-trough, began in the strong month of September. It should also be noted that the 2004 rally also began in late September.

Secondly, a similar “on-off” sequence seems at play here, with November set for a potentially strong month.

Predicting the numbers for a November Close would be a task of advance difficulty altogether. How should we adjust for a falling dollar? Where would the actual rally have begun from?

In addressing the “inflation” issue, silver and gold stand as a natural hedge against a falling currency. Thus, we might as well let markets take their course and suppose that things stay the same. Better our expectation be short of perform than greater. That was easy.

In regard to our rally beginning I found myself dashing between my browser and the calculator trying desperately to find some sort of ground to base some math of any substantial logic in order to find a correlation to history. But to no avail. My returns ranged incredibly. For instance:

2004 Peak to 2005 Trough -6.3%
2006 Peak to 2007 Trough -4.5%

Aug 05 low to Nov Open 11%
Jul 07 low to Nov Open 36%

200 DMA to Nov Open (2005) 7%
200 DMA to Nov Open (2007) 10.5%

Do bear in mind that while the 2007 returns often seemed favorable over those of 2005, this year we experienced a brutal sell-off and thus much of that 36% rally was due to short-covering, noted on the COMEX.
Nevertheless, it must be noted that 2005 also bore a sel- off and I am unaware of its respective ramifications on the futures market.

The one correlation I was able to find, which will have to suit me for now as an inexperienced analyst would have to be from each respective sell-off (what we will may refer to as the “ultimate low”) to the October Open.

2005 return = 7.40 / 6.75 = 9.6%
2007 return = 11.50 / 10.50 = 9.5%

Close enough!

From this point we may speculate – and I mean speculate – that while the price between October Open and the November Close gave a return of 11.5%, if we are to expect similar results, then we can look forward to a cautiously predicted November Close of $15.33.

Only time will tell.

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2 Responses to “”

  1. Sharon P Says:

    I enjoy your blog. One bit of commentary I’ve seen here that I had never seen before concerns portfolio allocation sentiment. Several months ago, you posted the results of a poll pertaining to how capital should be allocated (e.g. 40% cash, 20% stocks, etc.). Can you tell me what the official name for this poll is, and where the information can be found?

    Once again, this is a useful blog.

  2. Admin Says:

    Sharon,

    I searched throughout my blog albeit briefly however I was not able to locate that particular chart. I do recall that I got it from the InvestmentU.

    It is important to note that just as the CPA shouldn’t give advise before throughly understanding the financial predicament of he that be requesting, so too diversification is far more related to the individual than to the hoopla of the economic powers that be.

    We must differentiate between the Passive and Enterprising investors (how often are you prepared to rebalance?), as well as volatiloty sentiment (Buffett saw his net worth cut in half in the 70s. Can you?).

    My personal opinion is that when one goes out into the marketplace to buy an investment it is not in any way different than going to buy a brand new camera or more so – a home.

    You want the best product for the least you can get it for. If it’s 2000 all over again and some manufacturing stock is undervalued, do you buy it of course! And regardless of what your investment advisor says about allocation.

    The reason many analyst allocate a mere 5-10% to precious metals is often two-fold. a) Metals are still unconventional in nature and they feel uncomfortable quoting more. And b) Metals are volatile and they feel the average investor can’t handle them.

    The chances are that your anyone advocating 5% to precious metals own more than that.

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