Dust flux, Vostok ice core

Dust flux, Vostok ice core
Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).

Sunday, July 13, 2014

Patience while silver does its thing

What will happen with silver? Wish I knew.

There is what should happen--or rather what would be healthy for the market to happen. And then there is what will probably happen.

Here we see what silver has been doing for the last seven years. There have been four areas of stability, all of which appear to be approximately the same size on the log scale.

The last year has been spent within the confines of one area of stability, in S3. It must be frustrating for those who are eager to see its price go to the moon, but silver has been doing useful work over this time, filling in what had been an obvious gap (much like S4) prior to July 2013. The longer it stays in S3, the more certain this area will serve as a base after any future advance in the silver price.

Being long silver, I hope to see its price advance. I would feel more comfortable if after filling its current area of attraction, it would fill the gap in the chart in the $25-27 area (labelled S4 above)--something that could take at least another year to do satisfactorily. Once this is filled in, the price can advance to S5, with the $25 area becoming a new floor. Considering that it has taken a year to fill in S3 to its current level, which still doesn't really seem adequate, it could be a couple of years before silver is ready to return to $35.

Given its past volatility, however, it seems to me more likely that we will see a bump up to the S5 area or even higher before crashing back to the S3 or S4 areas, followed by a long period of consolidation within. If silver is in a long-term bull, it has to discourage the majority of those who wish to ride it. Consequently  each cycle will be different. It would not surprise me if after the next major rise we see the price appear to stabilize in the $50 range for as long as necessary, followed by a crushing return to S3 or S4. For this reason, I suspect it will remain difficult for silver mining companies to be profitable even over the longer term.

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