Yesterday, we warned you that the zig-zag in the yellow metal was not as bearish as it appeared at first sight and that it was likely a rather normal correction within a short-term (and short-term only) uptrend. Shortly thereafter, gold rallied back with vengeance and ultimately closed the session in the green. Miners moved above the recent highs and silver is rallying to new highs in today’s pre-market trading. Let’s take a look at the details.
The Short-Term in PMs
The rally in gold may caught the most interest from traders, but it was yesterday’s rally in the miners, and it is today’s rally in silver that have more important implications.
Gold miners tend to be strong relative to gold during rallies, especially in a given rally’s early part. That’s exactly what we saw yesterday. After a brief pause, miners resumed their rally and moved above the most recent highs, even though gold itself didn’t. That’s a subtle, yet important – sign of strength.
Since miners are outperforming gold and silver particularly well in the initial part of a rally (and silver catches up relatively close to the end of the rally), yesterday’s performance suggests that the rally has still some steam left in it. That’s very good, because – while our long positions are already profitable – it means that the profits are likely to become even bigger and that those who missed the buying opportunity can still join in.
Silver’s short-term outperformance will be one of the things we’ll be looking at in order to confirm the end of this short-term rally. At the same time, it might imply a great shorting opportunity.
At this time, you might be wondering if silver’s pre-market upswing (at the moment of writing these words, silver is up by $0.10 while gold is more or less flat) is already the sign that we were waiting for. The short answer is “no”. The outperformance is too insignificant so far and it would be best if at the same time silver outperformed gold and miners underperformed it. In this way, both signals would confirm each other.
The same thing can be observed from the more long-term point of view. Most of gold miners’ gains that you can see on the above chart happened between May and late June. However, in case of silver, most gains took place between early August and early September. It works from the long-term point of view as well. Remember how silver and gold miners performed about 10 years ago?
Taking the 2008 bottom as the starting point, the vast majority of gains in the gold miners happened before the end of 2009. In case of silver, however, the rally really picked up in mid-2010 and ended with a blast in 2011. Knowing how to move between these markets could have made very big profits while one stayed long precious metals for the entire time. On a side note, we dedicated a big research report to this phenomenon, in which we called the above strategy buy-and-hold on steroids. Cheesy name? A bit. Profitable? You bet. Interestingly, we know no fund managers with this specific approach to long-term precious metals investing (well, other than your truly, that is).
Moving back to the short term, knowing the dynamics between silver and mining stocks should be helpful in pinpointing the next turnaround. We already have quite a few indications of when and at what price the turnaround will likely take place and when we’d take profits off the table, but the above is likely to serve as a valuable confirmation.
There are still profits to be made on the current long trade in gold, silver, and mining stocks, but the odds are significantly lower if one doesn’t have a plan for taking profits off the table at the optimal risk to reward point. That’s exactly what we focus on in this trade and today’s Gold & Silver Trading Alerts provides all the trade details. Please note that you can still subscribe to these Alerts at very promotional terms – it takes just $9 to read the details right away, and then receive follow-ups for the next three weeks. Profit along with us.