Silver is ensured a prosperous 2020 thanks to the Fed
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In my previous article, I’ve written about how important US dollar movements are for future Silver prices. The chances of a significant Silver rally during US dollar strength is very low; and it is very high during US dollar decline.
The structure of the Silver bull market since 2001 has a lot in common with that of the 70s bull market. However, one of the important differences pertains to US dollar movements.
Below, is a comparison of a long-term Silver chart and the US Dollar index:
The first part of the current Silver bull market (1 to 2) has outperformed the bull market of the 70s (1 to 2). Much of this outperfomance was due to a deeper US dollar decline during the 1st part of the current bull market (2001 to 2011) as compared to the 70s bull market.
In a similar manner, the retracement from point 2 to point 3, in the current pattern, has been much deeper than that of the 70s pattern. Again, this had a lot to do with US dollar movement during the relevant period.
The US Dollar index actually moved significantly higher (red line on current US dollar pattern) during the retracement of the current pattern, whereas it was virtually moving sideways during the retracement of the 70s pattern (small red line on 70s US dollar pattern).
The current range of movement of the US dollar is therefore, much bigger than the 70s. This shows that the monetary system and the US dollar is much more unstable or volatile. The risks and speculation is getting bigger , which leads to bigger declines at the end of the credit cycle, which in turn needs an even bigger stimulus/bailout to keep the system going (which translates into a weaker US dollar eventually).
The credit extension and speculation from the early 2000s to 2007/2008 was big, and it led to a massive bailout and stimulus being required during the 2008 financial crisis. Silver prices reacted nicely to this by going from around $9 to almost $50.
The big stimulus (which was reflected in the significant increase of the monetary base or Fed balance sheet) was the setup for the continued credit extension and speculation, which brought us to 2020, where an even bigger stimulus is required (it looks like it is only getting started).
Since the current stimulus (increase in Fed balance sheet) is likely to fail, due to the massive deflationary forces , they are likely to just keep on pumping more and more.
Based on just the current stimulus since late 2019, Silver is already ensured a very prosperous 2020, and will eventually outperform the 70s bull market as well as the 1st part of the current bull market. Don’t expect a similar effect on other assets like the general stock market.
Everything about the current Silver bull market is likely to be bigger and better than the 70s, as can be seen in this chart:
For more on this chart and this kind of fractal analysis, you are welcome to subscribe to my premium service. I have also recently completed a Silver Fractal Analysis as well as a Gold Mining Fractal Analysis Report.