Silver Analog

February 27, 2014

This week two investment firms came out expressing their disbelief that silver has any more upside, so investors may start getting nervous and begin asking the same question. Back on Feb 11, 2014 I wrote an article titled “Coffee to Outperform Precious Metals” and within the article I stated that Coffee looked to reach $1.75 per pound – today it reached $1.78. I had recommended buying the Coffee ETF – JO @ 23.28 and selling it at 32.99 for a 47% profit in 21 days. What I did not mention in that article was the interesting similarities between the charts of Coffee and Silver.

Often times you can get what is called an ‘analog’, which simply means a representation of data that is similar when compared to data of a different origin. Coffee and Silver are the two sets of data of different origin that are being compared in the chart below, from year 2001~2014, with coffee represented by the orange line and silver by the black line. The coffee price scale is on the left side of the chart and silver on the right.

What is most interesting, is that of the 7 paired bottoms (coffee=red arrow:silver=blue arrow), coffee bottomed before silver 6 times during significant moves, which coffee subsequently followed. You will no doubt notice that the most recent move in coffee has been one of the most significant advances during the last 13 years. This begs the question, is silver next?

The coffee price has almost reached its 38% Fibonacci retracement of the entire 2 year decline. For silver to achieve the same level, it would have to go to just over $30 per ounce. Although I have never been a big fan of analogs, given that so many commodities are rallying strongly, there is little reason for silver or gold to be excluded.