There is a well-established relationship between how silver and gold trade. They often trade similarly in the same time period, but also at similar milestones, although those milestones are sometimes reached at different times. This can cause silver or gold to be the leading indicator, depending on the particular milestone.
I have previously used this relationship to predict how silver will trade. Below is an extract of that update:
Currently, there is another situation in the silver and gold market that provides an opportunity to predict how silver prices might trade over the coming months. I have pointed this out before, in a previous article. Here, I would just like to provide an update, and add a few more thoughts.
This situation or opportunity revolves around the 1980 all-time high for both metals. Gold passed its 1980 all-time high during 2008, while silver is yet to do so. By looking at the pattern of how gold passed its 1980 high, we can predict how silver might do it as well.
Below, is a comparison of silver and gold around their respective 1980 highs:
From the chart, you can see there is similarity in how gold and silver approached their 1980 high. Gold and silver made a triangle-type pattern (marked 1 -3) just before it reached the 1980 all-time high. When it came out of that triangle pattern, it rallied strongly to the 1980 high, which started the formation of a flag-type pattern (marked 1 - 9).
It appears that silver is now past point 9 (29 December 2011), and will now be eying that $50 level.
The existence of these similar patterns tells us that conditions in these markets are fundamentally similar when comparing the relevant periods.
Market conditions often cause silver to fall behind gold for quite some time, but silver normally catches up in a big way. The fact that silver is still caught-up in a trading range lower than its 1980 high, at least four years longer than gold already, provides a classic opportunity for silver to follow that "catching-up pattern" and zoom to multiples of its 1980 high.
With gold having passed $1700 (twice the 1980 high of $850) already, given the above analysis, it stands to reason that $100 (twice the 1980 high of $50) silver is achievable.
There are many indicators suggesting that we are close to a point where silver might catch up with gold, relative to its 1980 high, in a big way. My recent analysis of the gold/silver ratio also seems to suggest this. So, as things stand, I expect silver to outperform gold significantly for most of this year.
Silver offers great opportunity near the $30 level. Personally, I invest in silver bullion coins, in order to benefit from the expected silver rally. A popular vehicle to invest in silver is the iShares Silver ETF (NYSEARCA:SLV).
Silver is known for its violent corrections or pullbacks; therefore, it is advised to buy only after such a pullback or correction.