Thursday, 19 April 2018

Why the Price Spike in Silver?

The recent price rise in silver has caused a break down in the rising trend line in the gold to silver ratio.

(Click chart to enlarge)

The recent silver price rise could simply due to the gold/silver ratio reaching or nearing its historical top of 83 (green horizontal line).

In July 2017 (actually 7/7/2017), there’s spike that exceeds 83 intraday, but closed below today level of 72. So we’ve been here before. It also shows how important this gold/silver ratio = 83 level is.

(Click chart to enlarge)

In other words, historically, PM markets wouldn’t willing to pay more than 83 ounces of silver for an ounce of gold. When silver is approaching the ratio of 83, it’s saying silver is too cheap (relative to gold). 83 is a closing ATH. The best-fit or average number is closer to 82.

2 weeks ago when this ratio reached 82, silver begun its mean reversion trade, causing it to go higher.
Note that the RSI has reached oversold level, for now (see top chart). It’s therefore likely that silver would underperform gold in the short term (doesn’t mean silver can’t go up. Just goes up less than gold).

This silver mean reversion trade is easy, for those who pay attention. Clearly silver has NEVER cheaper than 82 ounces of gold, historically. When that happens, buy silver with very little downside.

Side note: Also miners are starting to outperform gold in relative term (more accurately, miners underperform gold less in relative term). Another positive development.

The last time, early 2016, when this ratio reaches its peak and reverses, we saw a rally in PM. Would this happen again? I think it probably would. But not right away. A bit more patience is required from gold bulls.

Bitcoin: Breakout of Down Trend

After falling from the ATH of ~$20,000, Bitcoin prices have finally broken out of the purple downtrend channel. For those who have read my previous Bitcoin posts, they're all too familiar with this purple downtrend channel.

Since mid-Dec 2017, Bitcoin prices have been confined to this downtrend channel for practically 5 months. It finally broke above this channel last Thursday (12 Apr).

Bitcoin chart March 2018
(Click chart to enlarge)

I've said in previous posts that if prices break above this downtrend channel into the white space above, i'll buy Bitcoin because this indicates the correction is over.

Have i bought it? No, not yet. When i said i would buy on breakout, that was when prices were found above the rising trend line ABCDE. This trend line has served as support since the parabolic run back in middle of 2017 (marked by 'A' in chart). I've made that clear in several posts, one of them is Bitcoin: This Support Better Holds.

Once prices dropped below this rising trend line ABCDE, this trend line is now acts as resistance. You could see that when prices breakout of the downtrend, it rises strongly, and yet it bounce off at E (instead of rising above E).

Of course, supports and resistances are just that supports and resistances. They can be broken.

For now, i'll continue to wait and see. After all, i've been doing that for 5 months, and did only 1 trade during this period. I can wait a little longer.

Overall, things are looking better than ever since the all time peak. Just like prices fell hard after the double tops (top horizontal green line), it finds strong support at the double bottoms (bottom horizontal green line).

Prices may trap between these 2 channels for a while.

In any case, i continue to sit on the sideline. But the time to buy is neigh.

For the long term holders who are strong believers of Bitcoin, buying now makes a whole lot more sense than buying in December 2017. Don't chase markets, buy when prices are low. Not when people are saying it goes up to a million dollars.