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Silver Still Has a Profitable Ride Ahead


Despite recent weakness relative to gold, silver by itself doesn't seem to be topped yet.

In the last several days I received many letters in which readers commented on my analysis of the seasonality on the silver market, so I decided to provide more detailed analysis of silver.

One letter from a subscriber mentions that "the 30-year seasonal charts for silver show November to be a higher drop, but the 15-year seasonal chart shows the trend to have changed." The question is which seasonal tendencies one should rely on. As always, it's useful to put things into proper context before making any calls.

In my opinion, the 15-year cycles are long enough to eliminate the "noise", so I think this signal is more important than the 30-year one.

Why did this tendency change? Because fundamentals for silver have changed.

There's much less silver now than there was 15 years ago, and the demand side of the market is changing -- the use in photography declines but the increase in demand for industrial applications increases.

Consequently, the amount of silver scrap entering the market is smaller (a very large part of it comes from the use in photography), and so on. Therefore, very long-term cycles for silver could be misleading.

When speaking of silver and gold in the same essay, it's very useful to provide a chart with the ratio that shows how much silver is worth in terms of gold or vice versa.


The silver-to-gold ratio has been declining in the past few weeks, which confirms that this isn't a final stage of this rally, and that it has much more to go. Naturally, this doesn't mean that there will not be any corrections along the way, but from the long-term point of view, this rally is still in its early stage. Let's take a look at the short-term silver chart for more details.


Silver appeared to be forming a bearish head-and-shoulders formation, but the action in volume didn't confirm this, and the formation was finally invalidated yesterday, when silver moved higher on strong volume.
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