Silver: strong and weak at once. how is that even possible?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Gold is barely crawling up, while silver is boldly climbing the market ladder. When will its rungs turn slippery, causing the precious metal to fall?
Yesterday’s session was particularly uneventful in the case of the precious metals market, as crude oil and the general stock market stole the spotlight.
Consequently, today’s analysis will focus on what’s happening in pre-market trading, as that’s what appears to be more important.
At the moment of writing these words, gold is up very modestly – less than 0.2%.
Consequently, after rallying to about $1,815 (in tune with my Thursday’s analysis) and invalidating the breakout above the rising resistance line, gold appears to be making another attempt to rally, but the strength of the move is very limited.
Predicting higher gold prices might not be the best idea here, as the yellow metal was not able to even get to the red line, let alone to its previous monthly high.
Silver, on the other hand, has moved quite visibly higher so far today.
While gold moved higher by less than 0.2%, silver rallied by about 1.5% and is now trading very close to its previous monthly highs.
This is very interesting, because silver is showing strength and weakness at once. How is that possible – one might ask.
It’s the same as with trends or forecasts for silver. They can be bearish and bullish simultaneously, depending on the time frame that one focuses on. For example, I think that the very long-term outlook for silver is extremely bullish, but I also think that the medium-term trend is bearish. The short-term trend is also bearish, but the immediate-term trend is bullish. So, am I bullish or bearish on silver? Answering this without specifying the time frame is bound to create misunderstandings.
Getting back to silver’s relative performance, it’s been weak when taking into account the last couple of weeks – please note how little of the recent monthly decline silver has corrected compared to gold. Gold recently moved to its October highs, but silver topped a few dollars below its October high. What does it tell us? Silver is likely to fall hard, also compared to gold, probably in tune with the general stock market – similarly to what happened in 2008 and 2020. That’s the same kind of performance that we saw in the very early parts of the huge declines.
At the same time, silver is strong compared to gold on an immediate-term basis. This means that we’re likely at or close to a short-term top. Why? Because that’s what the precious metals market tends to do when it’s topping, and it’s one of the great gold trading tips to monitor the PM market for these situations. One could debate why this is really the case, and there are quite a few theories (the silver market is smaller, so more prone to sudden moves, etc.), but the point is that it simply works. Please note that some things – like the Pareto principle (a.k.a. the 20:80 rule) – can work and be very useful, even if it’s not clear why they work.
Consequently, it seems that the days of this short-term corrective upswing are either over or about to be over, and that the precious metals sector will return to its medium-term decline any day now.