If you are a trader or chart person, you are often told that "parabolas" don't last and that a crash always follows a blow off peak. As with any other market bromide, this saying is a bit inaccurate.
For example, silver made a blow off top last May near 49 dollars and within days was back down into the 30s. By the end of the year it had dropped (briefly) to about the 28 dollar area. A decline of over 45%. But the real question, is: was this the end of the bull market over all, or simply a mini-parabola within an even greater parabola.
"A mini-parabola within a great parabola?," you might ask, "what is that?"
Let me explain. The last bull market in silver, from 1932 to 1980 (including times when the market was not fully liberalized) took the metal from under 30 cents to over 30 dollars (Jastram, Silver- The Restless Metal, 181). As I've written more than once, this was a return of over 100 times. It doesn't take a rocket scientist to see that this was a parabolic move. However, within this larger, multi-decade parabola, there were smaller parabolas, like last year, where the price would explode higher, then crash lower and consolidate. But the price ultimately turned around and the longer term bull market resumed.
Within Longer-Term Parabolas, Declines and Consolidations Happen
The largest such period was from 1968 to 1971, where the silver price went from $2.46 to $1.32, nearly a 50% decline. It was not until 1973 that the price of silver moved through the $2.40 area (World Silver Survey, 18). This period of decline and consolidation must have shaken many bulls out of their positions. Truly tragic, but this is how bull markets work: the bull does its best to shake the most people off of its back before a resumption higher. And then, in the case of silver in the early 70s, from the bottom silver subsequently moved from $2.40 in 1973 to $5.43 in 1974 (over a 100% move), corrected only about 20% in 1975 and then consolidated until 1977. By 1979 silver was up to 20 dollars at the end of the year. Nearly a move of ten times from the prior parabolic peak of 1968. Then came 1980, when the price moved 30% in one month, followed by a further 25% blow off higher in one day. The peak was 50 dollars. I wonder what the person who sold in 1971 at $1.30 was thinking then.
Bulls Markets Do Not Take Everyone To The Top
Markets are a mind game-- I shouldn't have to tell you this if you have been around them for a while. Do your best not to let the mind game takeover. Also do your best to realize that, on the one hand, the "long term" can be a "long time," but patience and perseverance can pay off. Study the fundamentals for an asset to move higher, but be skeptical of anyone selling something too good to be true, at least in the short term. Don't be overleveraged, understand your risk tolerance, don't bet the farm on black swan events, and if something seems destined to move higher, just ask me about mining stocks since 2010. However, in the end--- and this is important folks--- fundamentals win out.
In the case of silver, the biggest fundamental is simple money printing.
And guess what?
That chart is parabolic too.
