After reading this article with the same title on SilverSeek, we couldn’t have asked the question any better ourselves. On the heels of silver’s 2nd largest correction in a decade, many have asked us the same question.
Of course, a completely honest answer says “I don’t know for sure.” From looking at historical averages and considering current circumstances though, we can get a glimpse of what to expect though.
It’s generally well known that silver is more volatile than gold – in both directions. Gold’s average corrections in the last 10 years were 22.8% off its high. Silver corrections on the other hand have averaged around 42.1% though.
The 2011 correction was especially long in duration, the 2nd longest in 10 years in fact. Market observers from SilverSeek say silver hit an all-time high on April 29th and eventually bottomed out on December 29, 2011.
All told, silver took a 46.3% plunge from its high.
On average, it has taken silver 98 weeks, 4 days to reach its former all-time high. If we take the 46.3% decline from silver’s high of $48.70, it won’t hit that high again until May of next year (108 weeks, 3 days).
Courtesy of Casey Research
Gold corrections and recoveries on the other hand are much shorter in duration – 58 weeks on average.
Much of this is due to the fact of silver’s industrial applications, which are growing all the time. Collapsing industrial demand though can lead to sharper corrections, as seen in 2008 and 2009.
This time it’s a bit different though since investment activity in silver is much higher now than it was then. A recent report from the Silver Institute claims investor activity was the single biggest factor leading to the rally that led to last April’s high. Investment activity was also the main driving factor in the correction as well according to the report.
This investment demand is rooted is silver’s monetary characteristics. Andrey Dashkov, the analyst who wrote the SilverSeek article, expects silver to regain its currency appeal real soon “… given the amount of worldwide fiat currency destruction.” Dashkov goes on to say “This will be perhaps the strongest catalyst for prices going forward. We wouldn’t want to be without any silver.”
Predictions of when silver right now are purely that, predictions. A study from Casey Research claims we’ll see $48.70 again in May, 2012.
Whenever that event occurs, we completely agree with SilverSeek’s suggestion to don’t be discouraged by corrections. Regardless of any near-term weaknesses, silver’s bull market is far from over since the fundamentals still favor a bull market.
These fundamentals are simply this – growing industrial uses and demand coupled with silver’s similarity to gold as an instrument of money. As long as these factors are in place, you can expect to see silver remain strong. Conversely, corrections are an absolute certainty in this situation.
Considering today’s news on the Fed leaving rates stagnant until the end of 2014 only adds additional proof to these claims.
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