What’s Next For The Silver Roller Coaster?

The history may not repeat itself to the letter, but it tends to be quite similar. And the more two situations are alike, the more likely it is for the follow-up action to be similar as well. And in this case, the implications for the silver price forecast are clearly bearish.

Based on the above chart, it seems that silver is likely to move well above its 2011 highs, but it’s unlikely to do it without another sizable downswing first.

In conclusion, if silver meets its maker, the white metal is likely to lead gold and the miners to slaughter. Moreover, silver is well known for its false breakouts and its relative strength is often a precursor to substantial declines. As a result, last week’s short squeeze was much more semblance than substance. In contrast, once the metals rebase and trade at more appropriate levels, an attractive buying opportunity will emerge.

For more insight, let’s look at the relative performance of gold, silver, and the gold miners, and compare how they’re impacted by the USDX and the SPX. If you analyze the chart below, you can see that the precious metals all broke down in September, after the USDX broke above resistance.

ChartDescription automatically generated

Figure 5

To explain, I wrote on Jan. 18:

Like traffic lights flashing red, notice how the HUI Index (proxy for gold stocks) is trading well below its early 2020 highs? In stark contrast, gold remains moderately above its early 2020 highs, while silver is significantly above its early 2020 highs. The misaligned performance – with silver outperforming and gold miners underperforming – puts a bow on this bearish package.

The bottom line?

It is not only the case that silver was strong and miners were weak in the last several days – it’s been the case over the past several months as well. The implications are bearish.

Also troubling is that the stock market that’s soaring in the medium term, hasn’t shined its light upon the PM market. Contrasting the mantra that ‘a rising tide lifts all boats,’ equity market strength hasn’t triggered a sustainable rally in silver or the gold miners. And this “should have” been the case – both are more connected to stocks than gold is. Gold stocks because they are, well, stocks. Silver, due to multiple industrial uses

All in all, based on what we saw in silver recently, it doesn’t seem that we’re likely to see much higher precious metals prices without seeing a major decline first.

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Disclaimer: All essays, research, and information found on the Website represent the analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong ...

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