SD Friday Wrap: A subtle uptrend no more. Silver finishes the week strong and looking pretty fine right about now. Here’s a recap…
On Monday I was looking for higher prices in gold & silver to end the week.
Silver ended the week with a nice move, but gold has lagged and failed to regain the “psychologically important” level of $1200.
So here’s what the “experts” are going to say about this (this is the general line of thinking) –
“The move in silver is not confirmed by a move in gold so the move in silver is not valid and we’ll be at a 13-handle very soon.”
I’m not so sure, however.
I think the more likely scenario, assuming gold stays above the mid-August spike low of $1167, is that this is more likely the start of the move higher in the metals than it is just another break-out fake-out in silver.
Gold is higher than where it was in mid-August, so gold has “led the way” as the experts say needs to happen, which is exactly what has happened, and silver, being gold on steroids, catches up to gold and outperforms gold, so this is what we could be seeing right now.
I think that is exactly what is going on.
Why do I think that?
It really is that simple. I think that crude oil is acting as a floor for the price of silver. So let me go ahead and throw-up the crude oil chart first:
We’re above $73 bucks, and that strength is with dollar strength over the last two days. Crude oil is a major cost in the production of gold & silver because it take a lot of machines to move a lot of earth back and forth to convert metal inside of rock into fine gold or fine silver. And we’re sitting above $73. Now, if crude oil falls down into the $50s, then think that sure, we could see a 13-handle again in silver, but I really do think the support at $14 is solid, and combined with the move today, we can surely move that support line up a notch for the white metal.
That said, today is the end of the week, and for all intents and purposes, the end of September and the end of the Quarter.
So let’s look at the weekly’s and monthly’s as well.
First, however, let’s zoom-in:
I wanted to show silver’s out-performance to gold as the week went on. We can see that gold is down on the week, and it never really was able to recover from yesterday’s smack-down. Silver, on the other hand, had a very nice pop today, and those shorts must be getting nervous right about now. I mean, if you were able to buy silver’s dip near the $14 mark, well, we’ve already moved some 5% off of the lows.
I’ll take that, especially since we now have Peak Fed to deal with in addition to Peak Trump.
So on the daily for silver we see a nice big, fat, beautiful candle:
I have been writing about how silver is in a subtle uptrend, and just today, it seems that silver has decided to come out of the closet. While the moving averages aren’t on these charts, silver came up and nearly tagged its 50-day moving average today. If silver can test and then break-out of the moving average next week, well, we could very well see the start of all those spec shorts beginning to cover, and remember, the commercials don’t necessarily have to feed naked shorts into the specs as they stand to make bank on their long positions.
We’re also seeing premium creep, but I’m still not quite sure how to write about it and include it in my analysis because I don’t want to seem biased. For now, I’ll talk in generalities I would ask everyone to look on various bullion dealer’s websites and simply look at “generic silver rounds” as a product. I was making the rounds, pun intended, across the various bullion dealer’s websites last night, and what I noticed was that unless you’re buying 500+ coins, even generic rounds are going up in premium. I mean, spot price was in the $14.30s last evening, and I was seeing prices for 1-100 generic silver rounds over $16 for most varieties (implying a $1.50+ premium, for generic) . It seems most websites had some deal, but the deal was for bulk. The point is, and I’ve said this before – we are at the sweet spot right now as far as price plus premium goes.
We can see silver is now up for the second week in a row:
Looks like were about to have a bullish trend in the technicals as well. All in all, it is not looking terrible for silver right now.
In fact, silver is even up ever so slightly on the monthly:
We could really see a break-out next month in silver, and depending on all the turmoil in Washington DC, if we don’t see a break-out next month, well, everybody from the MSM to the alt-media is ready to see what happens to the make-up of Congress come November. It’s like I’ve said before – I think we are in the process of peaking with my Peak Trump theory, and over the next two months we are going to begin to see either confirmation that we have peaked, or we will see more pain in the metals.
Don’t shoot the theorist.
That’s just the way it goes.
Gold is struggling to maintain its uptrend:
Though gold is priced as if the world were perfect right now, meaning the US economy is just booming, nations around the world are singing kumbaya together, and there is no political chaos at home or abroad. The only problem is we know all of those things to be not true, so therefore it seems to me the price of gold has it wrong right now. In other words, because I think there is a floor in silver because of the crude oil price, I think there is also a floor in gold because gold is priced for economic and political perfection. That is to say, one skirmish in DC, one geo-political tension or hot spot abroad, some military escalation, or problems in the markets or the economy, and we could see gold turn on a dime by pivoting and surging higher in price.
And it sure looks like gold is building a launch pad of a few dollars to either side of $1200:
Just like with silver’s weekly chart, the weekly chart for gold looks like it is about to turn bullish with the technicals.
Besides, are we really going to drop for a seventh month in a row over the course of November?
Because we’ve fallen for the last six months:
You could also say we’ve fallen the last 7 of 8 months. We’re due for a “bounce”, but that’ the thing – a bounce implies falling further.
I don’t think that is gold’s projected path. I think we have bottomed out with the spike-low in mid-August, and we’re headed higher.
But “Hey, don’t listen to Half Dollar, he’s just some guy who puts words together to try and sound all smart and stuff but he really don’t know anything about the markets!”.
I get it.
I’m the worst forecaster. I’m not qualified to perform technical analysis, I have the worst predictions ever, and I’m sure I’m forgetting plenty, but there is a strong case to be make that we have bottomed here – and my case is fundamental, which should appease the “charts are useless” crowd.
Again, to restate the main reasons why I think the bottom is in:
- Silver – The price of crude oil is putting a floor under the white metal.
- Gold – The fact that gold is price for economic and political perfection is putting a floor under the yellow metal.
And even if I’m wrong about the bottom, since I care about everybody, yes even the trolls to because we all know deep down that if they troll for any amount of time, even the paid trolls, they ultimately become stackers because the truth always prevails, well even if I’m wrong about the bottom we will see my call get blown, that is only in relation to the spot price.
Please keep that in mind.
In other words, anybody holding out for $1150 gold and $13.50 silver will probably end up paying more than they would pay today for actual physical ounces in hand because premium creep is all too real (recall the article when I broke it down and showed how premiums on 90% were $6.49 per ounce over spot in September of 2015).
So yeah, I”m pretty confident the bottom is in.
For those who are still able to make purchases, in my opinion the gold to silver ratio is still favoring silver:
Personally, I would spend 100% of my stacking fiat right now on the white metal because that is an arbitrage play down the line that can turn into free ounces of gold.
Palladium has been on fire, so it was nice to see a pullback today:
Nothing goes straight up or straight down, and the technicals, especially the RSI, were screaming “overbought”, so we got a slight breather today.
Platinum, on the other hand, was up on the day:
Over the course of the week, platinum is down, but it is good to see platinum finish the week on a positive note.
Copper is also down on the week but finished the week strong:
If copper can keep the momentum then we will have painted a higher-low, and that would be a good sign for Dr Copper.
Tesla’s stock price is starting to look like its Model 3 on autopilot:
Could Tesla be the black swan?
Probably not because so many were wondering if the SEC was going to do something to Musk or not. But even if Tesla is not a black swan, the car company surely is a bad omen for the stock market in general.
Another bad omen for us equities in general are the small caps:
Companies in the Russell 2000 are small to mid-sized American businesses and not so much the giant “multi-nationals”. The general thinking is that these companies will do fine in the trade war because they are not export driven companies, but rather the small caps focus on the domestic US market. That said, it sure looks like a top is forming on the Heartbeat of America Index.
And I don’t need to remind everybody that come next week we start the month when, historically speaking, bad things happen in the stock market.
Of course, like gold, the Farce (as I like to call the VIX) is also showing nothing but pure economic and political perfection:
Amazing, isn’t it?
Other than GDP and unemployment numbers, both of which are heavily manipulated, we have a bunch of bad economic data coming in, month after month, and we have a bunch of political uncertainty in not just Washington but around the globe, and yet there is a total complacency in the markets.
Yield on the 10-Year Note has fallen post-Fed rate “hike”:
That’s not supposed to happen!
OK, “Hey Half Dollar, why is that not supposed to happen?”.
You see, the Fed is raising “short-term” rates. In essence, very, very short term, like overnight lending bank to bank rates. But the point is that as short term rates go up, if longer term rates are coming down, we can get what we call the “inverted yield curve”. Traditionally analysts, investors, pundits and traders will look at the “2-10 spread”, meaning the difference in rates between the 2-year and the 10-year, and look for that to invert.
An inverted yield curve is a problem because it means that banks are unwilling to loan and credit freezes up.
You see, an inverted yield curve means that short-term interest rates are higher than long-term rates. Think about it – If you lend somebody some of your hard earned fiat, the longer you lend it for, the more you expect to get paid back in interest, right? I mean, God forbid you could die waiting before you get your cash back, but besides the extremity of death itself, people generally value money in hand more than money in the future. It’s like “a bird in the hand is worth two in the bush”.
Back on track.
If you lend money out for a long period of time, you also run the risk of losing out to inflation, because as those dollars are paid back to you, those dollars buy less and less stuff because prices keep going up, so dollars in the future have less purchasing power, so you need to get more of them back for loaning out your hard-earned fiat.
There’s also the simple fact that people want to get paid for taking on risk. I mean, what if you loan out money but never get paid back? It happens all the time.
Therefore, circling back, what an inverted yield curve is telling us is that lenders are charging more for interest now than in the future because the risk is higher in the here and now, meaning they prefer to have the money in-hand now, rather than lend it out, because there are risks that in the economy that are imminent, so lenders will just hold on to their money and not lend it out.
Well, that was a hot mess of jumbled economics 101.
I wasn’t intending to explain the inverted yield curve, but now is as good a time as any because we often hear “the yield curve is inverting, that’s bad”, and it is, but now hopefully you know how to explain why it is bad. If not, read the paragraphs above a couple of times to let it sink in, and maybe even do some thought exercises by putting some examples on paper.
It is pretty important, and it is meaningful because an inverted yield curve is pretty much a guarantee that a recession is coming very soon, and history show this to be the case.
On Wednesday I said to be on the look out for a relief rally in the dollar:
We got just that.
Think about this: If the dollar rolls over here, that chart is going to look very, very bearish.
If the dollar rolls over here then we will have no painted a third lower-high, and while two lower-highs and two lower-lows make it a bit of a stretch to call a bear trend, a series of three lower-highs and three lower-lows would definitely be a bearish trend in even the most dollar bullish traders’ minds.
Bottom line after this week: Please take an hour or two doing what I said by looking at different premiums for generic silver rounds on various company bullion dealer websites.
You will see that premiums are in fact going up.
Premiums are telling us the bottom is in.
Is the bottom in for the spot price of gold & silver?
I think so, but even if the bottom is not in, we are all hard pressed to find actual physical metal for any cheaper.
So that seems like a bottom to me.
– 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.