Silver outperformed gold, but its strength may mean something other than a promise of further rallies. Is corrective upswing coming to an end?

Very little changed on the markets yesterday, which means that my yesterday’s analysis remains up-to-date. There are a few technical details that I’d like to additionally mention today.

The first detail comes from the silver market.

The white metal has been making higher highs and higher lows in the past few months, which might seem bullish at first sight.

However, higher lows and higher highs are only a short-term phenomenon!

From a broader point of view, what we saw recently is still a flag pattern, which is a continuation pattern.

Silver corrected less than a half of its preceding decline (please note the red Fibonacci retracements), and while it’s been stronger than gold and mining stocks on a relative basis recently, it doesn’t mean that the downtrend has ended.

In fact, silver’s strength can often be viewed as a bearish indication because it tends to catch up and outperform gold in the final parts of a given upswing. This is particularly visible in the case of medium-term upswings.

Ok, so the medium-term trend is bearish, but what about the near-term?

Truth be told, it wouldn’t surprise me to see silver move slightly higher before declining profoundly - with vengeance. The reason is that silver is very close to its June 2022 high as well as its 50% Fibonacci retracement.

The silver price broke above the other resistance levels, so it’s likely to move higher. Then again, the fact that two resistance levels coincide at a similar price level (~$22.5) means that this resistance is particularly strong.

Consequently, it seems that we’re in a “pennies to the upside, dollars to the downside” situation in silver.

Let’s keep in mind that since silver tends to outperform the rest of the precious metals sector in the final parts of a given upswing, the above-mentioned small rally in silver might not translate into higher gold or mining stock prices.

What could be the potential trigger for another small move higher in silver?

For example, the USD Index could decline to its strong support level at the 38.2% Fibonacci retracement and the August 2022 low as well as the May 2022 high. Such a move would likely imply the RSI at about 30, which would be a crystal-clear signal for many traders that the bottom is in.

To clarify, if that happened, the USD Index would be as oversold from a short-term point of view, as it was at its 2021 bottom – when it was trading at about 90.

The trigger could also come from the declining stock market.

As I wrote yesterday, the S&P 500 moved to its 38.2% Fibonacci retracement, which serves as a strong resistance level.

Indeed, stocks declined yesterday after a tiny attempt to move higher. In other words, the S&P 500 failed to rally above the 38.2% retracement, which increases the odds that the top is already in. At the moment of writing these words, the S&P 500 futures are trading slightly below 4,000, which means that there was no breakout above the above-mentioned retracement.

A decline from here would be bearish for gold, silver, and mining stocks, but particularly for the last two due to their higher correlations with stocks. The link with crude oil is less certain, but the implications are more likely to be bearish than bullish, in my view.

All in all, it seems that the corrective upswing in the precious metals sector is over or about to be over and that the truly powerful downtrend will resume any day now.

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