Best of the Week
Most Popular
1.US Dollar Crashes, Gold And Bitcoin Skyrocket As Economic Recovery Lie Is Exposed - Jeff_Berwick
2.Now Obama Warns Americans to ‘Be Prepared’ for Disaster… What Does He Know? - Jeff_Berwick
3.EU Referendum - Britain's Immigration / Migrant Crisis Explained - Nadeem_Walayat
4.EU Referendum - British People vs Establishment Elite, Vote LEAVE an Act of Defiance! - Nadeem_Walayat
5.Prominent Billionaire Investors Warn of Financial Crash, Quietly Position Themselves - MoneyMetals
6.Bankers Warn of BrExit Financial Armageddon if British People Vote for Freedom - Nadeem_Walayat
7.Bad U.S. Jobs Report Prompts Stocks Bear Market Rally Towards New All Time Highs! - Nadeem_Walayat
8.Gold And Silver – Friday May Have Marked A Pivotal Turnaround - Michael_Noonan
9.EU Referendum - British People vs Establishment Elite, the Illusion of Democracy and Freedom - Nadeem_Walayat
10.Felix Zulauf: Monetary Stimulation Creates Bubbles, Not Prosperity Nor Growth - GoldandLiberty
Free Silver
Last 7 days
Greenspan Calls Brexit a ‘Terrible Outcome’ as Euro Area Tested - 27th June 16
Stock Market SPX Below Mid-Cycle Support - 27th June 16
Best Holidays for Summer 2016 - 27th June 16
Another Stocks Bear Market? - 27th June 16
BBC EU Referendum Result Highlights - YouGov, Markets, Bookmakers, Pollsters ALL WRONG! - 26th June 16
Investors Map Post-Brexit Strategies Amid Global Market Upheaval - 26th June 16
Gold Price Weekly COT Update - 26th June 16
First the UK, then Scotland ... then Texas? - 26th June 16
Stocks Bear Market Resumes or Just More Noise - 26th June 16
Gold And Silver: Security, And BREXIT - 25th June 16
Dow, Euro & Brexit Recap - 25th June 16
Resistance Holding Gold Stocks after Brexit - 25th June 16
Venezuela vs. Ecuador (Chavismo vs. Chavismo Dollarized) - 25th June 16
Gold, Silver And PM Stocks Summer Doldrums Risk - 24th June 16
Here’s Why China “Economic Hard-Landing” Worries Are Overblown - 24th June 16
Jubilee Jolt: Markets Crash, Gold Skyrockets as Britain Takes Brexit - 24th June 16
BrExit Morning - New Dawn for Britain, Independence Day! - 24th June 16
LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - 24th June 16
Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - 24th June 16
EU Referendum Shock Results Putting BrExit LEAVE in the Lead Hitting Sterling Hard - 24th June 16
Final Opinion Poll Gives REMAIN 52% Lead, Bookmakers, Markets and Pollsters ALL Back REMAIN Win - 23rd June 16
Does BREXIT Matter? Outlook for Sterling - 23rd June 16
Keep Calm and Vote BrExit - Last Chance to Break Free of EU Superstate - 23rd June 16
Here’s the Foreign Policy Trump and Clinton Really Want - 23rd June 16
Details Behind Semiconductor Stocks Leadership - 23rd June 16
Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - 23rd June 16
BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - 22nd June 16
Proof that the Gold Bears are Wrong - 22nd June 16
Here’s a Trillion-Dollar Investment Opportunity for Those Few with No Debt - 22nd June 16
BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - 22nd June 16
Increase In U.S. Rig Count Will Not Cap Oil Prices - 22nd June 16
Are Copper and China Stocks Set to Rally? - 22nd June 16
SPX May Break Its Trendline - 22nd June 16
Believe it or Not: More Kids Live At Home Now than Since The Great Depression - 21st June 16
EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - 21st June 16
British Pound Outlook - BREXIT, Europe and You - Does your vote matter? - 21st June 16
Fascist Victory Behind the European Union - 21st June 16
EU Referendum Opinion Polls Analysis Shows Strong Momentum in REMAINs Favour - 21st June 16
Is It Time to Dump Gold and Buy Platinum? - 21st June 16
Could Central Bankers Be Gold and Silver's BIGGEST Allies? - 20th June 16
Words Still Mean Things – Brexit With Graham Mehl - 20th June 16
Baroness Warsi the Manchurian Candidate Quits LEAVE for REMAIN, Boris Johnson Next? - 20th June 16
FTSE Soars, Stock Markets Bounce on LEAVE Polls Surge, Bookmakers Widen BrExit Odds - 20th June 16
Brexit Would Trigger Devolution of Europe - 20th June 16
Stock Market Week Of Uncertainty - 20th June 16
Will Gold’s Bullish Price Chart Outperform Gold’s 5 Bearish Indicators? - 20th June 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

Silver Underperforms Gold in Early Stages of Bull Markets

Commodities / Gold and Silver 2016 Feb 22, 2016 - 06:11 AM GMT

By: Clive_Maund

Commodities

In the early part of Precious Metal bullmarkets, gold performs better than silver, but in the latter part silver outperforms gold. The reason is that the early part of bullmarkets in the sector are characterized by more serious and sober value oriented investors, whereas the latter part is characterized by momentum traders and speculators trying to make a fast buck, and they are attracted by the high leverage of silver relative to gold. This is the reason that the giant ramp in silver in the opening months of 2011 to a final parabolic slingshot peak in April - May signaled that it was all over, many months before gold itself topped out.


Even though gold has now signaled a new bullmarket with its recent breakout, silver is still underperforming and itself has barely broken out of its downtrend. This is because we are still in the very earliest stages of this nascent bullmarket, and momentum traders are elsewhere trying to make a fast buck. There is a positive flip side to this underperformance by silver, however, particularly when it has been going on for a long time, as is now the case, which is that it means that silver investments are cheap relative to gold investments and over a longer timeframe offer considerable leverage to them.

On silver's charts we can see the latest example of this underperformance of silver relative to gold. On its 6-month chart we can see that while gold has risen well above its October highs on its rally this month, silver has been unable to do likewise, and while gold has risen well above its 200-day moving average, which has turned up, silver has only risen a little above its still falling 200-day moving average, and is already spluttering with a big 7-year record Commercial short position having built up. This underperformance and high Commercial short position means that it is likely to get whacked on any correction. The silver charts look considerably weaker than those for gold at this point, which is normal in the early stages of a sector bullmarket. On a correction, which is believed to be imminent, silver is thought likely to drop back to the support in the $14.40 - $14.60 area near the upper boundary of its recent intermediate base pattern.

Silver 6-Month Chart

Turning to the long-term 6-year chart we can see again silver's weakness relative to gold. While gold has broken clear out of its major downtrend, silver has dragged its feet and barely broken out of its major downtrend. That said, however, the pattern shows great promise, with a quite strongly converging pattern closing up. So once it does get moving we should see some impressive action.

Silver 6-Year Chart

It's worth plotting the underperformance of silver relative to gold going back years, because the longer it goes on, the bigger is the potential for silver to catch up with gold again, and in the process reap big gains for investors in silver and related ETFs and stocks, which is why we are so interested in it. As we can see on the 7-year chart for this ratio, silver outperformed gold dramatically during the latter part of the prior bullmarket in 2010 and early 2011, which was a sure sign that the party would soon be over. Now the pendulum has swung to the other extreme, alerting us to the fact that while silver investments may be grudgingly advancing with gold at this point, once the sector uptrend gains momentum they will really come to life and catch up with gold investments, before proceeding to outperform again. This is why it's worth scratching around for bargains here, and especially when silver gets whacked backed again soon, which COTs indicate is a high probability.

Silver/Gold 6-Year Chart

Now we come to the "real fly in the ointment" (I'm trying to put it politely here), which is the latest COTs for silver. They show the biggest Commercial short position since 2008. While you can seldom be 100% sure of anything in this business, these readings indicate a high probability that silver is putting in an intermediate top here and will soon get beaten back, at least to the support at the upper boundary of the recent base pattern, and possibly lower.

Silver CoT

The long-term silver Hedger's chart, which is another form of COT chart, reveals that Hedger's positions are at their most negative since 2008, which is viewed as a warning to expect a drop soon. These positions definitely have bearish implications.

Silver Hedgers Position
Chart courtesy of www.sentimentrader.com

Finally the silver Optix, or Optimism chart, reveals that optimism towards silver is high at this point, near to all the peaks of the past year, meaning that there is a high probability that it will turn down, which means that there is a high probability drop silver will drop back from here.

Silver Optix
Chart courtesy of www.sentimentrader.com

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2016 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2016 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

Catching a Falling Financial Knife