(Kitco Commentary) - In my previous writing, I highlighted the gold/silver ratio (along with other factors), which led me to suggest that silver was poised to begin accelerating higher. Now that silver has reached its highest levels in over a decade, outperforming gold since that time, it's understandable that one might doubt whether the rally will continue, rather than holding on to see how far the pattern of new highs can extend.
The weekly chart of the gold/silver ratio below shows it encountering what I believe will be minor support as it continues its downward trend. It would be logical for momentum to push further into oversold conditions before finding a bottom.
The weekly silver chart, on the other hand, appears as bullish to me as the gold/silver ratio looks bearish. I believe it’s likely that momentum in silver will become overbought before the price finds a top.
The daily gold chart below shows the exact wedge pattern I discussed in my last writing, where I suggested that while the pattern wasn't necessarily bullish, a breakout to the upside would definitely be significant. The breakout did occur, it was retested at support in a textbook manner, and then continued higher.
Is gold overbought? Yes. Is sentiment in gold reaching bullish extremes? Most would say so. Does trader positioning reflect that bullish sentiment? It does. Normally, these factors would lead me to believe it's time to take profits. However, while I do expect increasing volatility moving forward, I believe it is better to stay in a winning position (with safeguards against downside risk) rather than exiting too early, especially when the potential for a massive move higher still exists. In silver, that potential feels almost tangible right now.
Thanks, and good luck!
