Memories of the 1980 top in silver are very clear to me because that’s when I made my first trek to a coin shop and purchased a hundred dollars worth of dimes as a long-term investment.
Looking back, I now see it as the clear sign of a top — when the ridiculous morning radio dj with no real financial knowledge makes a buy based on newspaper headlines, that’s a market that’s probably just about had it.
But that episode spurred my interest in the investments world and it was only a few months later that I found myself being hired at Dean Witter, which had just opened up a brand new mutual fund specializing in — guess what — the precious metals market. Another spectacular sign of a spectacular top.
My silver dimes disappeared long ago. They might be sitting in the basement of a house I used to own, but retrieving them would involve an ex-wife situation and it’s probably best to leave it all alone. I just don’t like the risk/reward on that.
And I don’t think that mutual fund is around anymore either after dropping in half within a year or two of the offering and staying down there for years and years.
A few weeks ago, I mentioned how peculiar it’s been to see gold above its 1980 high of $800/oz, while silver has spent most of last year playing catch up to its old all-time peak. It’s been catching up like crazy lately, but what took so long? It’s been quite the divergence.
Now that the white metal is within reach of that generational high, what does it indicate about the metals market from a technical analysis standpoint?
I think it means that the 10-year gold rally is about over. Silver’s parabolic move toward $50 is likely to exhaust itself as selling begins to show up near or at the all time high. You’ll see this expand to the precious metals markets as a whole when the realization takes hold that the 1980 high is also massive resistance to further quick gains.
In other words, the tulip bulb-like mania in the silver market may be about to hit a wall and that likely affects the entire metals complex.
Some would question whether a 31-year old resistance area could still be respected — could price levels from that long ago still affect modern day trading? That’s the beauty of being an old guy — I’ve seen it before, many times.
The gold point-and-figure chart below indicates the first support level for gold — way down there at $1000 an ounce. Chart courtesy of the legendary Skip Danger. I’d guess that silver will re-trace along the same lines.
Classic point & figure chart for gold
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