Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
USDT Ponzi Scheme FINAL WARNING To EXIT Before Tether Collapses Crypto Exchange Markets - 22nd Jun 21
Stock Market Correction Starting - 22nd Jun 21
This Green SuperFuel Could Change Everything For the $14 Trillion Shipping Industry - 22nd Jun 21
Virgin Media Fibre Broadband Installation - What to Expect, Quality of Wiring, Service etc. - 21st Jun 21
Feel the Inflationary Heartbeat - 21st Jun 21
The Green Superfuel That Could Disrupt Global Energy Markers - 21st Jun 21
How Binance SCAMs Crypto Traders with UP DOWN Coins, Futures, Options and Leverage - Don't Get Bogdanoffed! - 20th Jun 21
Smart Money Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 - 20th Jun 21
Rambling Fed Triggers Gold/Silver Correction: Are Investors Being Duped? - 20th Jun 21
Gold: The Fed Wreaked Havoc on the Precious Metals - 20th Jun 21
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter

Commodities / Gold & Silver 2020 Mar 20, 2020 - 12:30 PM GMT

By: P_Radomski_CFA

Commodities

In yesterday’s free analysis, we explained why a short-term corrective upswing in the S&P 500 was likely just around the corner. In today’s article, we’ll discuss how it’s likely to impact our silver price forecast. We’ll also make comment on the current opportunity in silver compared to the opportunity in the mining stocks.

Let’s start with a few questions that we received recently and let’s reply publicly for the benefit of all.

From the Readers’ Mailbag

Q: There have been statements circulating, mostly from those promoting physical precious metals, such as KITCO, etc., a lot more in the last days and weeks than usually, that the physical silver prices are at a great premium to the paper (futures) prices, such as $1.50- 2.00 above spot prices. They are claiming there is a serious present shortage. However, my investment advisor tells me that there is, in fact, currently a significant glut of physical silver.


A: That’s more or less… Normal. The prices on the futures market change fast, and the physical side takes some time to adjust. Sellers view the moves in futures as very brief, and hoping that prices will move back up, they don’t want to sell their inventory at what they view as prices that are ridiculous and temporary. But as the time passes, the prices on the physical market adjust. The same thing happened in 2013 when silver was declining substantially. The physical market lagged, and people were claiming that the physical market remains strong and that it’s all temporary, manipulative etc. Silver didn’t shoot back up then because of these claims, and it’s unlikely to soar back up for this reason right now.

The emphasis goes on “for this reason”, as we expect silver to move higher in the very short term, and verify the breakdown by moving back up to the 2015 lows, before sliding further. The reasons are emotional (technical) – no market moves in the same direction indefinitely.

Q: Please comment on the quote below:

But it's the supply side that has changed the market. No matter what the idiot permabull silverbugs may claim, there is an glut of silver and the physical oversupply is from the big base metals miners, e.g those with massive skarn or porphyry copper deposits in the Andes who suddenly started paying attention to their rather minor by-product credit a few years ago when the streamer companies offered serious money for something they'd taken for granted until then. “

A: First of all, we want to say that we think that silver will soar exceptionally in the following years. Not before sliding even more before, though. I – PR – like to think of myself as silver’s fan, but not a fanatic. I was one of the very few people that refused to view the gold to silver ratio at about 80 as something bullish.

The supply of silver is indeed relatively inelastic as it is mostly mined as a by-product. This is one of the reasons that makes silver so volatile. If it declines, the supply cannot be quickly limited to balance the price. If it soars, the supply cannot be quickly increased to balance the price. It’s a double-edged sword that currently makes the declines so significant, but also one that is likely to make silver soar particularly sharply in the final part of the next long-term upleg.

Q: I have been told that extreme lows in the Silver:Gold ratio (as is currently) has in the past led to significant rallies.

A: In other words, extreme highs in the gold to silver ratio (as is currently) has in the past led to significant rallies (in gold and silver).

And that’s true. The gold to silver ratio has been in a long-term horizontal trend for decades moving between 100 and 15. When a given resistance level in a trend (horizontal trend is still a trend) is being reached, it’s likely that the price or ratio (whatever was in the trend) is going to reverse.

But it all changes dramatically once we see a breakout above the resistance level. That’s why breakouts (and their confirmations) are so important as a trading tool.

In case of the gold to silver ratio, we saw an extreme breakout. It normally takes at least several daily closes before a given breakout is confirmed. This kind of confirmation arrived but was not necessary because the breakout was so huge. It was definitely not accidental.

The breakout is a game-changer. It means that we are in uncharted waters and that it’s a tough call to say how high can the gold to silver ratio really rally, since it was just strong enough to pierce through a multi-decade resistance like a hot knife through butter.

The Fibonacci extension tool can be useful here. The point is to “extend” the previous major move in a given direction by a factor of 1.618, 2, or 2.618. The last two are most interesting as the extension based on 1.618, was already reached and broken.

Based on these extensions, we get targets of 134 and about 170 (barely visible on the above chart). If gold declines to $890 after all, then the gold to silver ratio at about 170 would correspond to about $5 – close to its all-time lows.

Crazy? Wasn’t it just as crazy to expect silver below $12 just a month ago?

Let’s take a closer look at silver’s very long-term chart.

Silver in the Spotlight

The analogy to 2008 that we outlined on Monday (and that we’ve been featuring for many months) clearly remains in place.

And so does the similarity to the 2012 – 2013 slide. The former is marked with yellow, and the latter is marked with blue.

Based on both analogies, it’s about time (and price) for silver to correct… Before declining even more.

The analogy to 2008 has been working remarkably well in terms of prices. That’s what the yellow lines represent. The most recent slide in silver is almost perfectly in tune with the initial sharp slide that we saw in 2008. Once you click on the chart to zoom in, you’ll see a thin black line that shows the size of the slide in 2008, and you’ll see that we copied it on the left side of the current decline. They are so similar that it’s shocking even for us – and we’ve been writing about this extreme similarity for many months.

How did silver perform then in 2008?

It corrected to the nearest strong horizontal resistance level and the relatively round number of $14. It was about midway between the bottom and the 38.2% Fibonacci retracement. There was a second bottom after the initial one, two days later.

How about the current situation?

Silver moved lower today, and while it didn’t move between yesterday’s and Monday’s intraday low, it’s already very close. It will take silver only about 35 cents more to decline below yesterday’s low and to make this rebound extremely similar to what happened in 2008. Then again, that’s just a cherry on the analytical cake, and the analogy to 2008 will remain intact even if the shape of today’s session is a bit different.

Silver is now a bit lower than it was in 2008 in nominal terms, so the midpoint between the recent low and the 38.2% Fibonacci retracement is below the $14 level. Is there any significant horizontal resistance located over there? Of course, there is!

It’s the 2015 bottom – it formed at $13.62. This target is aligned with the mid-point between the recent low and the 38.2% Fibonacci retracement.

And the analogy to 2012-2013? Please note at what pace silver declined from the very first top (blue line). During the first very volatile slide, it corrected only after it reached the declining blue line. Guess what? Copying the same line to the recent final top (the 2019 one) provides us with a line that was just reached recently. This suggests that silver is about to rebound before moving again.

How high did silver rally during the analogous correction in 2013? It moved up by about 12.7%. Applying this kind of rally to the recent low in silver provides us with $11.77 * 1.127 = $13.26 as the target for the next local bottom. Of course, this analogy is not as precise as the 2008 one, so it can be used as its confirmation – this target is very close to the 2015 low.

One more note regarding the 2013 corrective upswing. Please note that two days after the initial bottom, silver formed another local low and then rallied in the following days. That’s exactly the same way silver bottomed (temporarily) in 2008.

Today is the day that’s two days after the initial bottom, so if silver moves temporarily lower today, please keep in mind that it’s normal, and it doesn’t invalidate the scenario in which silver now corrects higher.

This could be what’s likely ahead for the stock market and other commodities as well. The S&P 500 futures are lower so far today, but this might be the final move lower before their corrective rally. Crude oil moved lower as well and it might be bottoming shortly (we just cashed in profits on our short position in crude oil about an hour ago). In tune with the above, mining stocks could decline early today, only to move back up later and/or in the following days – we are not exiting our long positions in the miners at this time.

In fact, the best risk to reward opportunity continues to be in the mining stocks in our view, even though silver is about to correct upwards.

It is often the case that silver outperforms mining stocks in the final part of a given rally, but after examining how corrective upswings were shaped in different parts of the PM market during the 2008, 2011, and 2013 declines, it seems that this rule doesn’t really apply in case of quick rebounds within bigger declines.

If we see signs that miners are underperforming gold and that silver would still have some sizable upside potential, we might switch our long positions from miners to silver. It’s too early to say if we’re going to do it or not.

Also, we would like to take this opportunity to explain why we are aiming to profit on miners’ rebound only. It’s not because we’re not forecasting gold or silver at (temporarily) higher prices. The corrective upswing is likely to take place, and it seems that it’s already in progress. The point is that miners are usually the first to rally after a bottom, and they became ridiculously oversold in the short run recently, which made their run-up most likely and created the most favorable risk to reward setup. That’s why our focus is over here right now. There will be many times, when diversification between gold, silver, and miners is the way to go, but right now, concentrating on the miners seems to be a better choice. This choice proved to be very lucrative over the last few days (especially that we entered the long positions in the miners in the final 25 minutes of Friday’s session, almost right at the intraday low).

Thank you for reading today’s free analysis. Its full version includes detailed upside targets for our long positions in mining stocks that we entered in the last 25 minutes of Friday’s session (based on yesterday’s closing prices the UNLEVERAGED positions in GDX and GDXJ are about 50% profitable). We currently offer 10% discount for the first subscription period (even for the yearly subscriptions). Given how volatile the markets are, how profitable our trades just were and currently are, and how much is likely around the corner, the time to subscribe was never better – subscribe at a discount today.

Thank you.

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Tools for Effective Gold & Silver Investments - SunshineProfits.com
Tools für Effektives Gold- und Silber-Investment - SunshineProfits.DE

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA 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, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, 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 Radomski Archive

© 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