SD Friday Wrap: It’s been another rough week for gold & silver, but we now may have the worst behind us. Here’s why…
For good reason, for bad reason, or for no particular reason, the gold to silver ratio has a clear downward sloping channel:
One of these days we will break the channel to the downside.
- We’re right there, right now – will we break through next week?
- This week the ratio came down for the wrong reasons (smashed metals), but will it start going down for the right reasons next week?
- Or will we simply move back up to the top of the channel?
Zooming out on silver, it seems there could be several more weeks of this crap to go:
Notice the massive wedge that’s been forming over the last two and a half years.
And it is ending with a coiled spring effect which means one thing – a break-out or a break-down.
The likely scenario is a break-out.
Three words: Cost of production.
You see, there is a floor – the cost of production.
Crude oil is rising in price, inflation is back, wages are growing, the cost of red tape and regulation is increasing, and all the things that have an effect on price are pointing to higher silver prices.
Silver is trying to get back above its 50-day moving average:
But the bottom line is that silver is still in the agonizing range of $16.20 to $16.80.
The price is pretty much right in the middle of the range, with thirty cents to either side.
Gold had a big drop this week:
But it wasn’t enough to break the up-trend that has been developing ever since the end of 2016. You can technically take it back to 2015, but for the series of three higher-lows and three higher-highs, we need to used the end of 2016.
A series of two indicates a possible trend, but with the series of three (higher-lows/higher-highs), there is no doubt the trend is up. The series of three confirms it.
We just really need to make sure we don’t drop below $1250 because that would be very bearish.
I don’t think we will. I don’t think we have much lower than $1280 to the downside, and we’re back up in the low $1290s here on Friday afternoon, so we’ll see.
Gold looks like it wants to turn here on the daily chart:
And I’m sticking with my call – The rally begins next week.
Let’s just see what happens over the weekend on the fundamental front.
Ol’ Half Dollar doesn’t think that things are as certain, safe or sound as we are led to believe.
Come next week, I’ll be right, or i’ll be wrong, and I’ll own the call either way.
Not helping my call is palladium:
Palladium is back under its 50-day moving average again.
Platinum is not helping my call either:
But that’s the thing about bottoming – you won’t know until after the fact.
And in the case of platinum, the MACD looks to be on a bearish divergence once again.
But the read I’ve been getting, and the signals on the charts have been pointing to a rally.
I mean, the dollar was screaming “overbought” before, and it’s screaming it more than ever now:
Does the buck stop here?
Other than the minor dip last week that barely brought us under “overbought” territory, we’ve been in the extreme since April 27th.
It remains my opinion this is a bear rally, and it’s a melt-up bear rally due to the extreme bearishness and one-sidedness on the dollar going into the start of the year.
Here’s the backdrop:
At the end of 2016 when Candidate Trump was elected President Trump, everybody was uber-bullish on the dollar.
We were going to have this massive infrastructure spend, and all these super-duper awesome jobs, and it was a new dawn in America for the greatness we were about to become.
And what happened?
The dollar fell almost all year long.
Does that mean I think the dollar will rise all year?
I do not.
You see, there was nearly two months of bullishness building up in the dollar before it started falling in January of 2017. Most people were bullish on the dollar even as it fell, and it took quite a while for people to turn bearish on the dollar, but they finally turned bearish near the end of the year, in short time and in mass.
But the whipsawing action in the dollar will wear traders out and shake them out.
And that is what is happening now.
And that will lead to a more neutral read on the dollar, but the bias is bearish.
Because the dollar has been on a bull run for four years now, and that has been devastating to the entire globe.
Sure, it’s been great for us who get paid in and use dollars.
But for everybody else, it’s been a slow motion financial train wreck.
And those trends are reversing now because at one point, the train comes off the tracks, crashes and grinds to a halt.
Why am I harping so much on the dollar today anyway?
Because it is a major signal – when the dollar starts turning down again, the metals will really start moving higher.
Sure, I think the metals will move higher regardless, but it’s a question to the rate of acceleration, and the dollar is either the accelerant or the retarder.
Also helping my call is the stock market:
How do you spell going nowhere?
The Dow has literally gone absolutely nowhere all week long.
And since it has not been able to sustain the rally, the Dow looks like it could be rolling over here, and if it does – yup – you guessed it: Gold & silver accelerant.
Part of the reason for this “whole buncha nothin'” week has been the VIX:
But we’ve drifted lower ever since the “Volpocalypse”.
Here’s a question: Are we more likely to have a surprise to the downside in the VIX, or are we more likely to have surprises to the upside with spiking volatility?
Well, seeing as how the VIX is already at a 13-handle, I think surprises would come with spikes to the upside.
And that again is, yup, you guessed it – accelerant for gold & silver.
Part of the pause and reason to call everything financial into doubt is trying to understand what is happening with the yield on treasuries:
I know – It’s way too early to call it a new channel between 3.0% and 3.1%, but everybody is looking at the yield on the 10-year like a hawk.
Was 3.1% the top?
Can the market handle higher rates?
Can the economy handle higher rates?
What are real rates?
What happens if rates start going back down?
What happens if rates surge even higher and faster from here?
There’s a lot of unknowns right now, even if the VIX is saying otherwise, but it’s caused pause in all markets.
Wait and see.
Unfortunately, that’s the solution.
As we’ve been doing all year.
And what we’ve seen hasn’t been easy to look at.
But here we are.
Speaking of wait-n-see, check out the range in copper:
Call it $3.05 to $3.10, and for nearly a month.
Copper is starting to look like silver, but notice what that looks like: A floor.
It’s easier to see the floor with copper because, well, it’s copper.
Positive and negative emotions don’t spend much time on the base metal, so it’s much easier to see it like it is.
Unless of course you work in a copper mine, or you fabricate Ethernet cables, or you do something else that personally gives you a stake in the base metal.
Why am I so certain about these price floors?
Well, crude oil hit a new multi-year high yesterday:
Crude has now breached $72 to the upside.
Try as they may, but when the price of ever single thing on the planet goes up, it’s hard to keep the price of gold & silver down without either causing a mad dash into the metals, or exposing the price suppression worse than the coldest of cold-blooded murders in broad daylight on a packed city street.
Here’s the thing with crude: We are just one geo-political event, one pipeline explosion, or one oil spill away from $80.
Which is another reason I’m sticking to my call.
It’s both technical and fundamental.
And the technicals and the fundamentals are pointing to higher gold & silver prices.
Sooner or later.
– Half Dollar
About the Author
U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.