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Precious Metals Bulls, Expect Silver to Hit New Lows

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Every time silver has been up 15% in January, a 41% decline started before the end of February.

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Silver has had a strong start in 2012. Many of the precious metals bulls are popping the champagne corks and proclaiming the move as the start of the parabolic top. However, analyzing past data suggests that their celebrations may prove to be premature.

Presidential Election Years

In my recent article Silver Down 91% in Presidential Election Years Since 1917, I noted that silver has had only one presidential election year since 1917 when it was up 15% (1972). Since silver was up over 15% at the time of the article, it suggested the probability was low that silver would finish the year higher. However, since we had such a great start, should you throw the presidential election year study in the garbage can?

From 1917 to 1967, silver's highest return in any presidential election year was 5%, so any gains higher than that in the middle of the year were eradicated. Silver didn't really seem to go up all that much at any point during presidential election years.

But if you examine silver's pattern during recent presidential election years, silver almost always gets off to a good start. However, in most cases those gains completely evaporated by the end of the year.



As for 2012, silver's peak thus far was on Leap Day when it was up 34% for the year. Over the last eight presidential election years, silver's high of the year was April 2 or earlier in seven of them.

As for 1972, on December 31, 1971 silver was extremely undervalued by a wide variety of metrics (see archives). On December 31, 2011, silver was extremely overvalued by a wide variety of metrics.

January

Here are the years since 1784 (when the chartsrus.com monthly data starts) when silver was up 12% in January and silver's performance that month:

January 1983 28.98%
January 1974 23.80%
January 1980 23.74%
January 2012 19.67%
January 2008 14.01%

Here is what happened next:

1983 -- From February 15, 1983 to February 22, 1991, silver went down 77%. The February 1983 high would not be surpassed for over 24 years and eight months.
1974 -- From February 27, 1974 to September 17, 1974, silver went down 41%. The February 1974 high would not be surpassed for over four years and eight months.
1980 -- From January 21, 1980 to February 22, 1991, silver went down 91%. The January 1980 high wasn't even tested for over 31 years.
2012 -- ???
2008 -- From March 17, 2008 to October 28, 2008, silver went down 60%. The March 2008 would not be surpassed for over 2.5 years.

Every time silver was up 15% in January, a 41% decline started before the end of February.

Every time silver was up 12% in January, a 41% decline started before March 18.

January and February

Here are the years of the biggest performance From January 1 to February 29, its performance the first two months of the year and the subsequent pullback dates & decline percentage:

1 1974 78% Feb 27, 1974 to Sep 17, 1974 down 41%
2 2008 33% March 17, 2008 to Oct 28, 2008 down 60%
3 1979 27% February 21, 1979 to March 12, 1979 down 11%
4 2012 26% ???
5 1980 25% January 21, 1980 to February 22, 1991 down 91%
6 1973 25% March 2, 1973 to April 18, 1973 down 22%
7 2009 15% February 23, 2009 to April 17, 2009 down 19%
8 2004 12% April 2, 2004 to May 10, 2004 down 35%
9 1997 11% March 3, 1997 to July 17, 1997 down 22%
10 1999 11% February 15, 1999 to April 9, 1999 down 16%

As you can see, when silver has a good January and February, it has always put in a peak from January 21 to April 2 and then had an 11%-91% pullback. The average pullback was over 35%. When silver was up 16% over the first two months of the year it soon experienced a bear market four out of five times with only 1979 being the exception.

Summary

In summary, when silver has had a strong start to the year, it almost always experiences significant weakness soon afterward. The silver permabulls will be quick to tell you that the world has never seen anything like the present situation before and therefore past patterns will not apply. However the historical studies have proven more adept at predicting silver's 47% (so far) bear market than the endless hyperbolic propaganda from the silver bulls. A 40% decline suggests we are in store for yet another round of lower lows for silver.
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