SD Friday Wrap: To anybody who’s a contrarian or a value investor, silver is desperately trying to tell you something…
The gold to silver ratio shot above 80 yesterday:
Moves like we have seen over the last month have broken the sideways channel we were in since this summer. The difference now, however, is that since late November, the move has been more than 8.5%.
Anybody who uses the gold to silver ratio as a factor in deciding which metal to purchase would be favoring silver right now.
Here’s another way to see just how out of whack the ratio has become:
Notice the steep decline in the price of silver and the subsequent further divergence from the price of gold. The last time the divergence was this to this degree, back in early July, the price of silver rallied up until the cartel brought down the hammer in early September.
Taking cues from the divergence in gold and silver prices and cues from the GSR, it looks like silver does not have much more downside price action left.
Those two charts above show pent up energy, especially in silver.
Here’s another way of looking at it –
Silver is down on the year:
Whereas gold remains positive on the year:
Furthermore, the price of oil is in a parallel upward sloping channel:
Higher diesel prices increase the cost of mining both gold and silver because the price of oil is a key component in the cost of production. Iif crude oil’s upward channel chart pattern holds, the next move in price would be towards the top resistance line, which means the price of oil would be going higher.
The other two precious metals are showing the same story as gold & silver.
Platinum is now in the red for the year (like silver):
But palladium has been in a bull market all year long (gold is up on the year):
Another metal that is up on the year is copper.
After fading in the first half of the year, Doctor Copper began it’s run in early May and began seeing serious upside price action in July:
Since July, copper nearly entered correction territory with a decline of nearly 10%, but copper staged a rally in late September.
When breaking out to multi-year highs in October, many analysts were quick to call copper a bubble blown by Chinese rampant speculation, and while the October rally has faded, copper took a hard fall this week but has bounced off of support at $2.95. We’ll see if it holds.
So here’s something to consider: Fundamentally, the commodities, and specifically the base metal copper and crude oil, are up on the year and showing signs they are in a new bull market.
That is another point to consider when discussing where the floor happens to be in the precious metals. That’s because gold and silver have two qualities:
First and foremost, they are money. Therefore, they have investment demand/store of value characteristics.
Secondly, they are commodities used in all types of high-tech industries.
A bull market in commodities in general therefore confirms the birth of the bull market in gold and silver which began at the end of 2015/beginning of 2016, which most would argue is not really a new bull market but just the continuation of the commodities super-cycle.
As has been the case all year, I wouldn’t go about shorting the stock market:
We know the end game but we do not know what the ESF and the Fed have coming down the pike. They will keep it propped as long as they need to by simply printing up money to buy S&P futures, the indexes, and selling the VIX.
Speaking of VIX:
Once again the cartel has succeeded in beating the VIX down under 10. Sooner or later volatility will blow up too. Trying to time it, however, could be a grave financial mistake.
The dollar looks to be putting in a new head-n-shoulders pattern:
As the inverse head-n-shoulders pattern never materialized to our 96 target, the chart has now been set up for a bearish chart pattern.
If the chart pattern holds, it would be safe to say the US dollar is headed towards 91. So much for the “trade of the year”.
Since we’re on the dollar, that’s another way to tell silver is under the heavy hand of price suppression and extremely undervalued right now. In other words, the dollar has been falling all year, but the price of silver just turned red on the year as well. That is not a natural relationship. Generally speaking, as the dollar falls, silver rises.
The imbalances in silver, as shown in numerous fundamental and technical ways, combined with the absolutely terrible, negative sentiment with investors, should be flashing bright lights that the white metal is the ultimate contrarian, value investment around.
Finally, the yield on the 10-year is still range bound in wait and see mode:
Sooner or later we’ll see the bond market blow up, and the yields will spike, but for now, the yield on the 10-year is just waiting on the Fed next Wednesday at precisely 2:00 p.m. EST.
And on that note, we are not out of the clear yet as far as gold & silver go. If everybody now feels that the rate hikes are priced into the prices of gold and silver, the cartel might just come in to strong arm the markets and show gold and silver who’s boss. For now.
One day too, the gold and silver markets will blow up on them.
– Half Dollar