Below is my trace of the price of silver over the past 3 years. It was carefully traced from a commercial charting company's chart. I have drawn trend lines connecting successive peaks and troughs. The lines are parallel, though the scale is non-linear. This is to be expected, as I have explained previously, provided the log scale has been calibrated correctly (as it appears to have been here).

It astonished ME how many times the same angle of inclination of a hand-drawn trend-line hit 2 or more turning points on the graph. This looks significant, and I am sure a statistician would tell me it IS significant.

How do these trend lines work? By magic.

What does the above graph tell us?

• Silver is cheap, at under $5 an ounce
• The lines joining peaks and troughs seem to have changed from a down-trend to an up-trend around late 2001
• The formation seems to be compressing into a triangle or pennant going forward. At some stage this formation must 'break out' - it will have nowhere to go! The question is, will it break out to the upside or the downside?
• Your writer has optimistically drawn in possible future price movements for silver going towards and into 2004. He obviously expects it to break out to the upside, and to start testing the various strata of trading levels, sometimes called support and resistance lines, but better referred to as a complete and utter mystery. As a result he has put a little spread bet to the upside.

Fundamental Analysis of Silver

Notes to chart:

• European supplies start to decline
• Discoveries of silver in the New World
• (Western US discoveries
• Bunker Hunts corner the silver market

Above is my trace of silver over the past 600+ years, smoothed using a
best fitting curve. What does it tell us?

• Silver is cheap, at under $5 an ounce
• Silver has never been as cheap as it is now
• If the present trend line is followed, you will soon have to pay to have silver removed
• Since 3) is impossible a change in the trend is absolutely certain - at worst it will bottom out.
• If silver ever regains its former lustre, in June 2003 dollars it would have to hit well over $500 an ounce - that's a rise of 10,000%+! Of course it might take another 600 years to get back to that level (though I doubt it). However, in the foreseeable future (say 3-8 years) $1000 - $3000 gold and $50 - $100 silver is a fair bet. A rise of 1,000 - 2,000%. Not bad, considering the lack of downside risk...

As a result of looking at the above chart, first in disbelief, then taking a short vacation to think about it, coming back, discovering the chart was still there and it wasn't some fantastic dream after all, I now have quite a bit of silver stashed away for a rainy day. The rainy day I have in mind is when the next currency crisis strikes. I am insured against the unlikely event of my house burning down. So probably are you. However, unlike my house burning down I EXPECT this currency crisis to happen. All the more reason to have an insurance policy. And guess what - by buying silver I only have to pay my premium once, not annually! If you want a similar insurance policy, read Silver in Store .

From soon after onwards on our graph it is suspected that the paper silver market has been artificially manipulated to force the price down, despite a supply deficit. Marshall Auerback, Ted Butler and Brian Bloom are among several analysts who have commented on this recently. Should the anticipated short squeeze occur in silver, the rebound in price could be pretty substantial. To be honest, I don't think anyone knows how much fizz there will be in the bottle once the cork is popped.

Sine wave analysis of silver

What does the above graph tell us?

• The green wave envelope is the area described by monthly candlesticks from a commercial silver chart
• There are 2 identified cycles, blue and white
• The ratio of the two cycle periods is 4 years to 1 year
• There is a major downtrend towards the point of the second pennant.
• A breakout from the second pennant is imminent.
• The spike caused by a single high-profile high-volume purchase of silver by Warren Buffet spooked the market, taking it temporarily away from trend. This was, in effect, a 'glitch', but a revealing one at that, since it touched the top of the next (red) downtrend channel....
• 11 occurred just as both cycles were due to coalesce to the downside. The up-draught caused the price to miss the bottom of the blue sine curve.

What is going to happen next? The picture above suggests a peak around the end of 2003 to around $5.50 followed by a resumption of the long-term downtrend. The silver peak also seems to coincide with that projected for the HUI by wave and other analyses, and may be the reason why the HUI looks set to out-perform gold this year.

Somehow such a muted scenario for the silver price does not match the fundamentals for silver, which are very strong. Read the following article, from where I took the chart to create this Wave Analysis, and you'll see what I mean...

This is what I REALLY think is going to happen.

Parabolic analysis of silver

What does the above graph tell us this time?

• The head is more than half-way formed.
• A breakout to $7 by the end of 2003 is predicted (watch the blue sine curve).
• The neckline and other large-form support/resistance levels (white dotted lines) are slanted upwards quite steeply. Dollar supply inflation may be partly to blame for this, as could be price manipulation.
• The parabolic (shown here by a background colour transition) is symmetrical about an axis running though the focal point. It is drawn using a curve-drawing program with minimal data points. The upside is a natural extrapolation of the curve defined by actual points of contact of the silver price and the apex of fan pennant 2 on figure 3).
• To track the parabolic as it carries silver up like a rocket will require a chart with an exponential price scale.
• The red and green (down and up) channels shown in the background are interesting because of their symmetry and also for the strategic points of intersection they make with each other, and with other trend lines.

The predicted price rises rapidly with time going forward. Depending on the length of the silver bull run I would expect new successive highs in 2003/2004, 2007/2008, and 2011/2012 etc, with each high being exponentially higher than the previous one. These highs may synchronise with gold price highs. Elsewhere I have suggested that gold price natural highs have been in May in recent years but there is some evidence emerging to suggest that the Gold peak may be moving earlier.

I cannot give an accurate forecast for price or time from this analysis beyond the first cycle. Nonetheless I am, as you know, on-board for the investment ride of the century.

Notes:

• These analyses are predicated on things carrying on 'as per usual'. An exonomic event, or the 'discovery' of criminal price manipulation, may accelerate the price appreciation of silver to an unpredictable degree.
• The parabolic of chart 4 may, in fact, be the base of a giant sinusiodal wave. From the limited perspective of this time-scale they could look fairly similar. Looking back at chart 2), a good case can be made for a sine wave of just under 2 centuries in length bottoming out right now! Possibly about to experience a 'V' bounce? I also note from 2) that the last 2 double-century up-waves have been getting progressively steeper - maybe this one will be ... vertical??? An angle of inclination anticipated by...
• The Buffet spike - this was an attempt to launch silver into an alternative flight path ABOVE the focal of the parabolic. It only just failed to reach escape velocity.