| What Crude Oil Says about Silver | <b>Gold</b> Silver Worlds Posted: 23 Jun 2014 02:35 PM PDT If you want to know where silver prices are going, ask crude oil! Crude Oil Prices: January 2000: Crude Oil price was about $24 July 2008: Crude Oil price topped about $147 December 2008: Crude Oil prices crashed to about $35 June 20, 2014: Current price is about $106. Summary: Prices are volatile, spiked high and low in 2008, and have, on average, risen steadily for the past 14 years. Politics: The situation in Iraq, a major oil producer, seems to deteriorate every day. The chaos and violence could easily spread and that chaos and violence will reduce supply and kick crude oil prices higher. Adding to the chaos, central banks will "print" more euros, yen, and dollars and governments will add to their mountains of debt. Price inflation will accelerate and the dollar will weaken further. Demand: More cars in Asia need gasoline. Even if the world economies contract, demand for crude oil should continue to rise. Conclusion: Crude oil prices have many reasons to explode higher and few to drop lower. The trend has been up for more than a decade. Central banks will print, politicians will instigate more wars and invasions, and each euro, yen, and dollar will purchase even less crude oil and gasoline. It is business as usual, but with an extra dollop of chaos, war, and price inflation tossed into the mix…. Dennis Gartman: "It's abundantly clear that Iraq as we know it will cease to exist in the not very distant future – probably within the next year and a half." Arabian Money: "Only this time may be different. The geopolitical crises unfolding in Iraq and also the Ukraine do not look like passing convulsions." Conclusion: Higher oil prices, more military spending, more debt, more chaos, higher consumer prices. How does this relate to silver? The following graph shows the price of crude oil in black – left axis, and the price of silver in red – right axis, for the past 12+ years. Both lines have been smoothed with a 52 week simple moving average of weekly crude and silver prices.  silver price vs crude oil shows strong positive correlation - Crude and silver have been trending upward for 12+ years.
- The dotted lines are approximations of their linear trends – clearly upward.
- The 52 week moving average of crude is about $100 – below the linear trend. Market price is a bit higher with plenty of room to spike much higher as Middle-East and Ukrainian warfare escalates.
- The 52 week moving average of silver and the current market price are both about $20 – well below the linear trend. Silver could more than double in price and not violate the 12+ year upward trend.
- Crude oil prices are moving higher and silver prices will follow.
- Statistical correlation between crude and silver for 12+ years of weekly smoothed prices is about 0.84 while correlation between unsmoothed weekly prices is about 0.79. Crude and silver prices are closely aligned in the long term.
Regarding gold and silver - Statistical correlation between 52 week smoothed gold and silver prices is over 0.97. If gold is going higher, so is silver.
- Richard Russell: "The Bear Market in Gold is Over."
- Jim Sinclair: "30 reasons, 23 new and 7 set in cement, of why the Bear phase in the bull market for gold ends this summer without any new lows."
CONCLUSIONS - Crude oil prices have been going up for 12+ years and will continue to climb. Politics and war will accelerate the price increases.
- Silver and gold prices have bottomed and are resuming their bull markets. Expect much higher prices.
- Rig for stormy weather – coming in from Iraq, Syria, Ukraine, Russia, South China Sea, "amateur hour" in foreign policy, more wars and invasions, and much of Asia reducing their dependence upon the dollar and Treasury bonds.
- Preparation is essential.
- Silver purchases are good preparation.
GE Christenson | The Deviant Investor  |
| <b>Gold Price</b> Projection – for 2013 | - Deviant Investor Posted: 29 Aug 2012 11:05 PM PDT (August 2012) Check out the Silver Price Projection – for 2013 article! 
Conclusion An objective and reasonable estimate for the price of gold at the next intermediate peak (estimating 2013 – Quarter 2) is $2250 to $2550 per ounce (current price is about $1,650). This is not a prediction based on wishful thinking and hope, but a best estimate based on rational analysis of data back to 1975. The actual price for gold at its next peak could be higher or lower, and the peak might be earlier or later, but this price range and approximate time is, by this analysis, the most probable. Analysis The actual analysis is complex, so I encourage you to focus on the conclusion above. But if technical analysis is interesting to you, please continue reading. Until the last century, silver and gold had been money for thousands of years. During the long history of gold and silver, the price ratio of gold to silver has averaged, depending on analysis, around 15 to 20. Since 1975, it has been as low as 17 and as high as about 102. The ratio is low when silver is expensive compared to gold – which occurs at peaks in the price of gold and silver, such as in early 1980. Silver is a smaller market and much more volatile in price than gold, so the ratio can stretch one way or the other depending on the degree of speculative fervor in the market or the degree of price depression and disinterest in precious metals, such as in 1991. Extremes in the ratio usually occur at highs and lows in the prices of both metals. How is this useful? Instead of working with the gold to silver ratio, invert it and use the silver to gold ratio. That ratio peaks with price peaks in silver and bottoms with price bottoms in silver, and it usually coincides with price peaks and bottoms in gold. However, there is no simple answer as to what ratio is "high" or "low" since the ratio might be very different between the decade of the 1970s and the 1990s. There is, however, a technical indicator called the Relative Strength Index that is normalized between 0 and 100. The RSI can be used with any time scale, such as 5 minute price data or 50 month data. The result is the same, a number between 0 and 100, with low numbers (such as 14) indicating a severely "oversold" condition and high numbers (such as 80) indicating a severely "overbought" condition. For example, suppose silver (SI) has been rising for weeks, more rapidly than gold (GC), to a price of $40 while gold has risen to $1,600. The gold/silver ratio is 40 and the silver/gold ratio is 0.025. If we calculate the RSI of the SI/GC ratio using, say 21 weeks as the time period, the RSI formula might return a number of 78. This is a high number, particularly for a RSI of 21 weeks. This indicates that the SI/GC ratio is quite high and likely due for a fall, with silver falling much more rapidly than gold. Sounds easy, doesn't it? The problem is that both gold and silver, while overbought, could rally further and become more overbought, and the RSI of the ratio might rise higher, say to 85, while the prices of both gold and silver jump even higher. If you had sold (when the RSI was 78), you missed some profit, and if you sold short, you incurred some losses. This is the dilemma of all traders: when to buy and when to sell. (Few people can buy at the lows and sell at the tops, so they need other tools to help time their trades.) I don't know of any simple and fool-proof answer. What I do know is that we can delve deeper into the above SI/GC ratio analysis and come to some high probability predictions that will give us a reasonable degree of safety and security in our quest to buy low and sell high. - Run the same Relative Strength Analysis for the SI/GC ratio, but use a longer time scale – like 40 weeks. Further, average the 40 week RSI numbers over a centered 11 week period, using the current week's number plus the 5 weeks both before and after the current week. The result is a smoothed RSI that is centered about the relevant week in the analysis. (Clearly, the last few weeks in the series are not using the future RSI values.) This removes much of the short-term "noise" – the weekly fluctuations that mean nothing in the long term.
- Calculate the 65 week simple moving average (add the prices for the last 65 weeks and divide by 65) of the actual gold prices. This produces a long-term trend for gold prices that has removed all but major fluctuations in price.
- Calculate the 7 week simple moving average of the actual gold prices. This gives a short-term average that is much more volatile than the 65 week moving average.
- Subtract the 65 week average from the 7 week average. Then divide by the 65 week average. This produces a percentage above or below the long-term trend of the 65 week moving average for gold. This is important because it measures a deviation from average in percentage terms, but not in actual gold prices, which have varied over the past 12 years from about $255 per ounce to $1923 per ounce. Further, it relates the percentage (over or under) to a long-term moving average, which accounts for both bear and bull markets in gold prices.
- Graph the 40 week (centered) RSI of the SI/GC ratio against the percentage that the 7 week moving average of prices is above or below the 65 week moving average of prices (percentage of price deviation or PPD). The graphs of both are similar as to direction, highs, and lows.
- Examine the graphs of both the RSI and the percentage of price deviation. You will find that major lows and highs in the RSI and percentage price deviation (PPD) occur roughly every 18-24 months, but the timing is not consistent enough that you would trade on these cycles. A chart since 1975 will not display well due to the amount of data. However, the following chart (data since 2005 is more manageable) shows the correlation between the RSI of the SI/GC ratio and the percentage of price deviation in gold.
-
- Further, you will see that peaks in the PPD occur between 45 and 60 weeks after their lows and that the PPD peaks rise to an average (since 1/1/2005) of about 27%. This means that the 7 week moving average, less the 65 week moving average of price, divided by the 65 week moving average of price, peaks around 27% – perhaps 20% some years and perhaps 33% other years.
- The bottoms in the RSI, after being smoothed so much, are always at or near (on a weekly scale) important bottoms in price, which occur approximately every 18-24 months.
- Finally, note that an important bottom in the RSI occurred in May 2012, and that it was the second most oversold bottom in the past 12 years.
- Putting this all together, we conclude:
- An important bottom in the smoothed RSI and the price of gold occurred in May 2012.
- The next top is due 45 to 60 weeks later, say second quarter of 2013.
- When the top occurs, the PPD is likely to be around 27%. The current 65 week moving average of gold prices is about $1650. Assume that the 65 week moving average in 2013Q2 will be about $1820. If the PPD is 27% above the 65 week moving average, then the 7 week moving average would be about $2300. But the actual gold price on a daily basis tends to peak about 5% above the 7 week moving average of prices. Add another 5% to $2300 and we produce an estimated price of $2400 per ounce for gold at its next intermediate peak roughly estimated to be during 2013Q2.
- If we "bracket" this estimate, the calculations would show:
- a low estimate of $1800 plus 20% plus 4% = about $2250
- a high estimate of $1850 plus 30% plus 6% = about $2550
- Hence, a price of $2250 to $2550 is reasonable for a most likely estimate of the next intermediate peak in gold.
- Is this consistent with any other estimates? A graph of gold on a semi-log price chart shows an exponential rise for the past decade. A long-term trend channel that includes all but extremes in high prices passes through $2400 about the end of 2013Q2, with a chance of a 3% to 5% overshoot, as happened in 2006, 2008, and 2011. Hence, the trend channel indicates that even a peak price of $2550 is not unlikely.
What Could Go Wrong? - Congress could choose to balance the budget, reduce spending by perhaps 40%, and throw the US economy into a deep depression. In that case, gold probably would fall, rather than rise further from its current price. (Not likely)
- A huge supply of gold might be located and brought to the market, driving prices lower. (Not likely)
- Commodity trading rules or regulations might be changed that could repress the price of gold. (Not likely)
- A financial crash that depresses all markets, including gold and silver, could make the next intermediate-term high both lower and later than expected. (Possible)
- Other currently unknown possibilities.
What is Likely to Occur? - Our economy will operate more or less as it has for the past several decades. Occasional crises will occur, and they will be managed, usually by creating more dollars to bail out banks, major corporations, the stock market, cities, states, pension funds, or whatever, as needed.
- People will increasingly realize that more currency in circulation will create price inflation where our dollars will buy less and less. Eventually people will realize they need to trade their dollars for something of value that will protect their purchasing power from inflation. (Remember the 1970s.) Those choices could be gold, silver, diamonds, fine art, farm land, commodity ETFs, and many other possibilities.
- Gold and silver will continue to rise, doubling every 3 – 5 years, until our government manages to tame the deficits, the borrowing, and the inevitable inflation.
Conclusion An objective and reasonable estimate for the price of gold at the next intermediate peak (estimating 2013 – Quarter 2) is $2250 to $2550 per ounce (current price is about $1,650). This is not a prediction based on wishful thinking and hope, but a best estimate based on rational analysis of data back to 1975. The actual price for gold at its next peak could be higher or lower, and the peak might be earlier or later, but this price range and approximate time is, by this analysis, the most probable. GE Christenson
aka Deviant Investor If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail. Promote, Share, or Save This Article
If you like this article, please consider bookmarking or helping us promote it! from your own site. |
| <b><b>chart</b></b> shows mini <b><b>gold price</b></b> - News 2 Gold - Blogger Posted: 21 Jun 2014 04:17 PM PDT | This <b>Gold</b> Model Calculates <b>Prices</b> Between 1971 & 2017 | Deviant <b>...</b> Posted: 03 Mar 2014 11:05 PM PST 
Gold persistently rallied from 2001 to August 2011. Since then it has fallen rather hard – down nearly 40%. This begs the question: What happens next? - Did the gold bull market end at the top in August 2011 as many mainstream analysts believe?
-
OR - Was the decline during the past 2.5 years merely a correction in the ongoing bull market?
The answer, in my opinion, can be found in my gold pricing model that has accurately replicated AVERAGE gold prices after the noise of politics, news, high frequency trading, and day-to-day "management" have been purged. I presented the specifics of my model at the Liberty Mastermind Symposium in Las Vegas on February 22, 2014. A detailed presentation would be much too long for this article, so the following is a quick summary. 
Object - Create a simple model of gold prices based on a few macro-economic variables, NOT including the price of gold.
- Each variable must be intuitively sensible in its affect upon the price of gold.
- The results must be graphically similar to actual prices for gold since 1971 and be statistically significant.
Variables - The most obvious macro-economic variable is the currency supply or some proxy for it. Since 1971 the U.S. currency supply has been increased much more rapidly than the underlying economy has grown. Hence the value (purchasing power) of each currency unit (dollars) decreased and prices, on average, have risen considerably.
- Other variables that might be applicable are the CPI, Japanese Yen, real interest rates, dollar index, 30 year T-bond yields, DOW Index, copper prices, national debt, commodity prices, and many more.
- A logical and causal relationship can be established between each of these variables and the value of gold based on either the declining value of the currency, or the changing demand for commodities and hard assets versus the demand for financial assets.
Process - My model was created, tested, and refined to include only three variables – simplicity makes the model more credible.
- My model attempted to replicate the smoothed annual prices for gold. Smoothing filtered out most of the market noise and clarified what I refer to as an equilibrium or "fair" value for gold.
- My model made NO attempt to predict actual weekly and monthly gold market prices.
- Smoothing was accomplished by using monthly closing prices for gold since 1971, creating a centered 13 month moving average of those prices, averaging January to December monthly prices to create an annual price, and then making a 3 year moving average of those annual prices.
- Smoothing examples: Actual market prices in 1980 went as high as $850 but the smoothed gold price for 1980 was about $460. Actual market prices in December 2013 went to an approximate low of $1,183 but the smoothed gold price for 2013 was about $1,520.
Model Results - The calculated Equilibrium Gold Price (EGP) had a correlation of 0.98 with the smoothed gold price from 1971 – 2013. Examine the graph of EGP and Smoothed Gold.
- The model was both simple and robust. It worked effectively, on average, during gold bull and bear markets, stock bull and bear markets, blow-off tops and crashes, volatile oil prices, Y2K and 9-11, QE, Operation Twist, ZIRP, various hot and cold wars, occasional peace, gold leasing, gold manipulations, and high frequency trading distortions in many markets.
- In August of 2011 gold was priced about 30% ABOVE the EGP.
- In December of 2013 gold was priced about 26% BELOW the EGP.
Graph Notes - Smoothed gold prices are shown in a "gold" color.
- Calculated equilibrium gold prices (EGP) are shown in green.
- The long-term trend from 1971 – 1980 was up, from 1980 – 2001 the trend was down, and from 2001 to 2012 the trend was up. (Actual gold market high price was August 2011.)
- Nixon closed the "gold window" in 1971, removed any semblance of gold backing for the dollar, and thereby enabled the creation of significantly more dollars into circulation. The various measures of "money" supply, official national debt, Dow Index, price of gold, many commodities, and most other prices increased exponentially between 1971 and 2013.
Future Prices for Gold per the EGP Model Assume: - Macro-economic variables continue to increase and decrease as they have for the past 42 years.
- The U.S. economy continues along its typical, but weakened, path with government expenses growing more rapidly than revenues, as they have for decades. National debt rises inevitably.
- Congress continues its multi-decade habit of borrowing and spending, talking about change, and changing little. The Fed supports the stock and bond markets and continues "liquidity injections" as it deems appropriate to benefit the 1%.
- Monetary, political, and fiscal policies will NOT be materially different from what they have been during the past 42 years.
- The U.S. will NOT be subjected to global nuclear war, Weimar hyperinflation, or an economic collapse, while we will continue to be subjected to the same Keynesian economic nonsense that has created many of our current "challenges."
Given the above assumptions, a reasonable projection for the EGP (a "fair" price for gold) in 2017 is $2,400 – $2,900. Remembering that market prices can spike significantly above or crash below the EGP for many months, we could see a spike high above $3,500 or $4,000 in 2017. Extraordinary events such as a global war or dollar melt-down could push prices higher and sooner. I plan to publish the details of this model, including variables, graphs, analysis, and the calculation formula in a paperback book. Until then, you may find value in these articles: GE Christenson
aka Deviant Investor If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail. Promote, Share, or Save This Article
If you like this article, please consider bookmarking or helping us promote it! You can skip to the end and leave a response. Pinging is currently not allowed. | |
0 Comment for "What Crude Oil Says about Silver | Gold Silver Worlds"