|
Is silver in a bubble? In our opinion; no. But what
can we learn from past bubbles? There are many ways to detect an
investment bubble including extreme positive market sentiment, outrageous
demand and speculation, widespread mainstream acceptance that the investment
is a “sure thing” etc. In this article we would like to
focus on the big picture perspective of a markets price performance.
The above chart clearly illustrates what a genuine, parabolic,
investment mania, or bubble, can look like. Note the following:
1)
The
“mega spike” climbed to about 4,572 which is about an 82 fold
increase from its low. That is an increase of 8,200% without including
dividends.
2)
All
previous highs are not even close to the ultimate blow off high.
3)
In
1992 the Nasdaq was up a whopping 11 fold and it appeared to be in the
process of putting in a parabolic blow off spike.
This chart helps illustrate what the massive 11 fold run up
would have looked like in 1992. From this perspective it may have been
reasonable to expect a bubble and exit all positions. However, our
first chart illustrates that the Nasdaq later powered higher to a remarkable
82 fold climb from its 1992 high.
This is a current chart of silver which illustrates the
remarkable parabolic spike we are witnessing today. There are many
similarities between this spike and the Nasdaq mid bull market spike.
From today’s perspective one may wonder how the price of silver could
possible go any higher. However, as the Nasdaq chart illustrated above,
it is possible for a market to head much higher and reach extreme bubble
status.
In the above chart you will notice that Silver has not hit a new
all time high. The Nasdaq bubble popped with an extreme all time high
that dwarfed any pervious tops. You will notice that in the 1970
– 1980 bull market run, silver’s 1980 top towers over any
previous highs. There are many other signs that the silver market is
not currently in a bubble such as the dismal underperformance of the silver
mining shares.
All of these charts and explanations are very exciting for the
potential of the Silver bull market. We believe that silver is destined
to hit much higher numbers in the future, but there is another reality of
this chart that we would like to point out.
When we look at the how Silver advances in the chart above, we
notice that it tends to spike up and quickly fall back down.
Additionally, we know that precious metals in a bull market have the
potential to have extreme down turns such as the fifty percent multi-year
correction in the 1970’s gold bull. A look back to 2008 reminds
us of the massive volatility in these markets. The reality is that
silver is spiking and history would suggest that this can be a very high risk
period to put new capital to work in these markets. It is entirely
possible that a significant intermediate term correction lies ahead of silver
and prior to the final mega blow off that we believe is coming. We
don’t think silver is currently in a bubble but that does not mean it
can’t wipe out a significant number of over confident bulls who are
throwing fresh new capital into this spike. Silver has climbed from $9
to $38 in only a few years and that pace is not going to last
indefinitely.
Michael Kilbach
Editor
Investmentscore.com
|
