Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20
QE4EVER! - 9th Sep 20
AMD Ryzen Zen 3 4800x 10 Core 5ghz CPU, Cinebench Benchmark Scores (Est.) - 9th Sep 20
Stock Traders’ Dreams Come True – Big Technical Price Swings Pending on SP500 - 9th Sep 20
Should You Be Concerned About The Stock Market Big Downside Rotation? - 9th Sep 20
Options Traders Keep "Opting" for Even Higher Stock Market Prices - 8th Sep 20
Gold Stocks in Correction Mode - 8th Sep 20
The law of long-term time preference and Gold ownership - 8th Sep 20
Gold Bull Markets: History and Prospects Ahead - 8th Sep 20
Sheffield City Centre Coronavirus Shopping Opera Ahead of Second Covid-19 Peak - 8th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Silver Outperforms Gold, So Should I Sell My Metals or Buy More?

Commodities / Gold & Silver 2009 Aug 16, 2009 - 12:03 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleLegendary investor Jim Rogers says he can't wait for the International Monetary Fund to sell some of its gold holdings. Should that cause the price of gold to dip, Rogers says he will buy some more.

In fact, Rogers says he buys gold whenever he thinks about it.


"If it goes down I'll buy some more, and if it goes up I'll buy some more," Rogers said in a CNBC interview. "I periodically buy some gold. I don't have a method to it. I just buy it."

The IMF is the world's third largest owner of gold reserves. The number one holder of gold is the United States, followed by Deutsche Bundesbank.

In last week's essay I discussed the new Central Bank Gold Agreement signed recently by 18 countries limiting the amount of gold they can sell each year. They agreed to sell no more than a combined 400 metric tons of the yellow metal each year through September 2014. The agreements were originally introduced to give the gold market stability in the knowledge that sales by central bank would take place in a regulated framework removing the wild card that gold would get dumped ad hoc on the market.

But that still leaves the IMF, which is not a signatory. The U.S. Congress passed legislation in June which allows the American representative to the IMF to agree to the planned sale of some 400 metric tons of gold to finance aid to poor countries. (The IMF holds 3,217 metric tons.)

Last week I reported that the signatories to the agreement sold 73 per cent less gold in the first six months of the year when compared to the previous year. It was the lowest level since 1944 - definitely a bullish sign.

I think the market has already discounted the planned IMF sale and that it won't cause any disruption to prices. It is completely possible that one of the other countries, China, for example, eager to beef up its reserves, might snap up the entire amount as they have already indicated that they would like to do.

Getting back to Jim Rogers, he said he buys gold whenever he thinks of it. However, we are much smaller investors and need to time our trades with more caution. Therefore, let's turn to the charts for some clues.

Silver

Recently, relative to gold, silver has been acting very strongly. Gold is more or less where it was a month ago, whereas silver is about $1 higher. Since previously I have said that silver tends to outperform gold during the final stages of an upleg, this recent tendency might cause some nervousness. Before I move on to the silver-to-gold ratio analysis let's take a second look at the silver chart.

Besides silver's recent out-performance, and the fact that the $14 level has turned from resistance into a support level, there is one more thing to consider.

I'm referring to the bottom/top cycles present since the beginning of 2009. I have marked them on the chart with red vertical lines. My research shows that every time this particular period passed, silver either put, or was close to putting, a bottom or a top. This signal is not precise as far as the exact day/price is concerned, but it is reliable in indicating the general tendency

Please note that according to these cycles we are close to the "bottom" vertical line, and are still in the early part of a bigger upswing. This would imply that we can expect higher prices.

Yes, the Stochastic Indicator is at the overbought territory, but it has been more useful in estimating bottoms than calling tops. As far as RSI is concerned, silver is not at the overbought territory. It is close to it, but the same levels (as today) have not meant a top in the past - i.e. the beginning of February and early May 2009.

Silver / Gold Ratio

As I mentioned earlier, silver's recent strong performance relative to gold could cause worry since in the past this has often happened during the final stage of a rally, and thus would indicate lower prices ahead. Still, this time, the visible rally in the silver-to-gold ratio is already behind us.

If you take look at the ROC indicator and the levels it achieved prior to a sell-off, you'll notice that we are currently much below that level. (The Rate of Change momentum indicator informs us how much the price of a given security changes in a given period.)

The reason I include the ROC indicator here is that its construction allows us to isolate really rapid, meaningful moves from the steady, slow ones. In this case, the ROC tells us that the recent out-performance of silver is not really bearish.

For more information about what might be causing the disparity in the performance of the two precious metals, we will need to take a look at the precious metals correlation matrix

Precious Metals Correlations

Although not much has changed in the 30-day column (which is statistically significant), the past two weeks (10-trading-days column) were indeed characterized by only moderate correlation between gold and silver (barely 0.09).

Further analysis reveals that gold and gold stocks have been driven by moves in the USD Index (-0.84 and -0.86 correlation coefficients respectively), whereas silver has been rather independent from the dollar (0.18). On the other hand, the correlation between gold (and gold stocks) and the general stock market has been very weak while silver has been trading a little more in tune with it.

Thus, this week's price disparity could be explained by the fact that gold followed the USD, while silver (to a small extent) followed stocks. Historically (1500-trading-day column), silver is much more highly correlated with stocks, than gold (0.43 and 0.09 respectively). Keep in mind that gold's little brother has many industrial uses.

Summary

The technical situation in the gold and silver markets is still positive. However, two key drivers of PM prices are now vulnerable to a strong move in either direction. The odds favor the continuation of the previous down trend in the U.S. Dollar, but this is not a sure thing. A move higher in the main stock indices has recently become more probable as they have managed to stay above the critical support level. They have been moving sideways, taking a breather, and making the continuation of the previous rally more probable.

Getting back to the question raised in the topic of this essay - long-term favorable fundamentals have not changed, so there is no need to sell your long-term holdings. On the other hand, if you are trading precious metals, you will need to remain cautious in the coming days, and wait for a significant breakout in either direction. In this case subscribing to a professional support service seems to be a good way to go.

To make sure that you get immediate access to my thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time. Additionally, if you considered subscribing to the Premium Service in the past, but didn’t want to use monthly subscription type, we have good news for you – we have just introduced 90-day and yearly subscriptions, which are available at a discount.

    P. Radomski
    Editor
    Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw RadomskiArchive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules