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Silver is one of the most price volatile of commodities. It is prone to wild swings up and down in price. This makes it all the more important to be cautious when trading and speculating in it. We recall back in the 1980’s when the price spiked to $50. It then entered a long bear market all the way back to $4.00 per ounce in 2001. Along the way there was much hope and disappointment among traders and investors, over and over again.

Check out current silver trends here.

History tells us that silver is likely to have more wild upward action in the future, but it also shows that these spikes can be followed by years of grinding downward. This shows the value of a system like the 12 Points system that is designed to keep us out during the down periods, and in during the bull periods.

The U.S. dollar has lost 90 percent of its purchasing power since the dollar gold standard was ended in 1971. This is the main driver pushing silver and gold higher. There is no indication that there will be anything but continued increases in the supply of dollars. Therefore, we should expect the long term trend of silver and gold prices going up to continue.

Let us look at a 20 year chart of silver with some support and resistance lines in order to examine some tendencies that can help us in the long run.

Support and resistance levels are marked with horizontal colored lines. The phenomenon we are focused on is the fact that price has always returned to the point of previous spike highs. For example, the green line at the bottom is drawn from the high point of $5.95 in 1999. The price then drifted down for several years, then spiked above the green line to a high of $8.50 in 2004. But the price then came all the way back to the green line before proceeding higher, in other words back to the former point of upside resistance.

Now, we aren’t saying that the price will always retrace to the exact level of former upside resistance. As they say, never say never or always. However, in silver in particular, it seems to hold as a rule.   Note that this rule almost always works on the daily charts as well.  The retracements seem to be very predictable to return the price to the former resistance level, or below it, during bull moves.

Continuing on the chart we see price spiked up to the red line, then back to the green line. Then it went on to the black line, then up to the blue line, then all the way back to the red line before spiking up to $49.82.

After spiking to $49.82, price proceeded to return to and below the blue line, consolidated for a while, then proceeded to and below the black line where it has been consolidating again.

When this price consolidation and testing of previous support lines is finished, silver optimists can reasonably expect a new breakout which will carry the price much higher than the previous high of $49.82. Whether that begins in the next few months, or years from now remains to be seen. But one thing seems apparent, and that is that no matter how high it goes past the previous high, the price should eventually return to the previous high of $49.82 for either a long consolidation or a short retest.

One factor that could negate that from happening would be an out of control loss of value of the U.S. dollar. So far the authorities have managed to maintain an orderly devaluation of the dollar, but we can’t be sure if they can continue with that. You should know it when you see it. The previous spikes in gold and silver were not accompanied by anything near equal spikes in the consumer price index. If the CPI spikes along with gold and silver, then normal retracements might not happen.