Highs & Lows, Ups & Downs

Have We Seen The Gold & Silver
Highs and Lows for 2010 already?

By Franklin Sanders
The Moneychanger

        The shortcoming of statistics, of course, is that is presupposes a world run by random chance, when in fact the world is not governed by chance, as is easily proven.
        Construct a peanut butter and jelly sandwich. Before your complete final assembly by placing them together, drop either side of the sandwich, whether with the jelly or with peanut butter. The bread side will never hit the floor first. Likewise, nobody ever has a flat tire at an unimportant occasion. Flat tires only occur on the way to weddings or court appearances.
        So when I approach the silver and gold markets, I do not expect a statistically random distribution of highs and lows. Rather, I presuppose that many factors are driving the market, some I can identify and some I can't. Indian farmers tend to buy at the end of their harvest season and for certain festivals, European manufactures do not buy during August, their vacation month, but return and begin buying in September, American money managers tend to buy or sell after quarterly and yearly results, and so on.
        The distribution of buying across the year is not random, but produced by outside factors. So when I look at the highs and lows, I presuppose that these forces are causing metals to peak and trough, not mere random chance.

But It's a Small Sample

        All this suffices as my excuse for the smallness of my sample. In statistics, a sample must have at least 30 data points for validity. I have data for silver and gold reaching back to 1975, but that entire period is not a bull market. 1975 through 1980 was, but not the following 21 years. If you assume that factors driving a bull market differ from those driving a bear market, then bull markets ought to show a somewhat different pattern of highs and lows. (In fact, the 35 year sample doesn't vary much from the shorter post-2000 sample, merely more scattered, as you'd expect from more readings).
        Where am I heading with all this? I have two questions: Have we seen the gold and silver highs and lows for 2010 already? If not, how might the rest of the year unfold?
        Bear in mind that the patterns I will discuss are based on readings from only 9 years, 2001 through 2009. Nor should you ever disremember that no reading of the future is carved into stone. Merely because a pattern has appeared the last ten years doesn't mean that the next ten years won't utterly diverge. Still, some human desires are driving gold and silver, and so far they have left a footprint. We can reasonably expect - guess - that footprint will fall near the same path in the future.
        Be aware that these highs and lows are yearly, not cyclical. Market moves often last more than one year, e.g. from the October 2006 low to the March 2008 high. That comprises one market cycle from trough to peak, but spans nearly 19 months. Here I am using the high and low prices for a given calendar year, 1 January through 31 December.
        Why not merely use a seasonal chart? Because seasonal patterns average performance over many years, which muddies their accuracy for forecasting highs and lows and commingles data from bull and bear markets. I want to know how this bull market is behaving.

Silver Highs

        Look at the Tables, "1. Silver Highs by Year" and "2. Silver Highs by Date." The first shows the date on which silver highs occurred year by year, and the second rearranges those highs by the date they occurred during the year.
        Look at "2. Silver highs by Date." The pattern immediately jumps out:

• Five out of nine (55.5%) of silver highs fall before 5 June.
• NO silver highs appear in July, August, September or October
• Four out of nine (44.4%) silver highs occur after 8 November
• Three out of nine (33.3%) silver highs occur in December.

        Thus there's not much point in looking for another silver high before November, but with so many highs occurring after October (44.4%) we can expect silver to rise generally between July and November.

Silvers Lows

        Look at the other Tables, "3. Silver Lows by Year" and "4. Silver Lows by Date." The first lists silver lows year by year, the second arranges them by date in the year.
        Once again, a pattern appears:

• Six out of nine (66.6%) lows show up before mid-May.
• No yearly silver low appears in July, September, or December.
• Two out of nine lows (22.2%) fall in the 30 days from 28 October to 26 November.

        I'll draw conclusions from this, or at least implications, below. But first, let's glance at gold.

Gold Highs

        I've included comparable Tables for Gold, "5. Gold Highs by Year" and "6. Gold Highs by Date."
               Look at "6. Gold highs by Date." Does any order emerge?

• Three out of nine (33.3%) gold highs take place before mid-May.
• No gold highs fall in June (when we just saw the highest gold price so far this year on 25 June), July, August, or October.
• Seven out of nine (77.8%) gold highs occur after Labour Day.
• Six out of nine (66.7%) gold highs, two out of three, manifest in December. Thus out of the mist and fog of events materializes gold's bull market addiction to make a yearly high in December. (Remember, I am talking about yearly and not cyclical highs.) Oddly, of the four peaks on gold's chart that first grab your eyes (2006, 2008, 2009, and 2010), only one falls in December (2009). The others all fall in the spring.

Gold Lows

        Glance at the Tables for Gold, "7. Gold Lows by Year" and "8. Gold Lows by Date."

Translation?

        Facts without interpretation mean almost as much as snowflakes in a blizzard. What do these high and low alignments mean for us, right here in July, watching silver and gold falter in a correction? Bear in mind that what follows only applies likelihoods and follows the main chance. When you play poker, never draw to an inside straight. When a market posts highs three years out of four in December, that's likely to repeat, certainly more likely than a never-before-seen July high.

For Silver:

       1. New silver lows appear not in July. So far silver's low this year occurred on 5 February at 1482.3¢. Gold and silver's lows tend to strike within a day or two or each other, and in this case both fell on the same day. Only one out of nine silver lows has landed in August, and none in September. Thus a new low for the year for silver seems unlikely. Possible, but unlikely.
        2. One-third of silver's yearly lows surface in the 30 days from 28 October through 28 November. This low usually manifests against a backdrop of prices rising into December.
        3. Silver never makes a low in December, nor does gold.
        4. Silver's highs cluster in December. One out of three silver highs appear in December, four out of nine between 8 November and 30 December. Better than half, five out of nine, come between 9 November and 26 January (about 90 days).

For Gold:

        All the above implies that the correction we now are viewing should not proceed much deeper than it already has. Certainly, it should not contain any new low in silver or gold. Over half of silver's lows occur before 5 June, none has occurred in July, and only one in August.
        Lows of silver and gold usually occur within days of each other. Lows so far this year for both fell on 5 February. Since gold's lows fall overwhelmingly (88.9%) before 15 May, we probably have seen the low for 2010 for both silver and gold.
        Since 2000, no silver highs have occurred in July, August, September, or October. So far this year the high has been 1964c on 12 May. That might mark the year's silver high, since 55.6% of the highs fall before 5 June, but 44.5% happen in November or December, too.
        Likelihood says we have seen silver's low for the year and implies silver will rise toward year end. After sideways correction across the rest of July and August, gold and silver should rise into a December high, or even extend that rise (as in 2007-2008) into a vastly higher high in Spring 2011.

An Odd Footnote

        Here's a weird event. In 2006 silver's high reached 1484.6 on 11 May. In 2010, silver's low stretched to 1482.3 on 5 February. Oddly enough, the November 2008 silver low at 880 was 605 below that 1485 resistance. The 2008 high at 2068.5 less 605 equals 1463.5, so 1485 stands about half-way between silver's 2008 high and low. I suspect that means silver enjoys rock solid support at roughly 1485, although I never expect to see silver trading there again.
        Editor's Note: Franklin Sanders is editor of The Moneychanger, P.O. Box 178, Westpoint, TN 38486, 1 year, 12 issues, $149. Bull & Bear readers can receive, for a very limited time, a one-year subscription for $95. Call 1-888-218-9226 to subscribe. The Moneychanger features market projections for Gold, Silver, Coins, Stock Markets, Investments, Interviews, Alternative Health, and much more "to help Christian people prosper with their morals intact in an age of monetary and moral chaos."
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