Finally, we have seen the obvious (what most people will now take note of) kickoff to a short-term correction in the precious metals. Depending on the fundamental picture, we can plan on taking advantage of a buying opportunity as we have been noting over last couple of weeks.
Gold got blown up in 2 days with respect to the short-term rally. Watch for gold to bottom before silver as we likely transition into a phase of gold leadership over silver. Key support is from the 1300 down to 1270.
Silver vs Gold became very over bought by daily charts. Silver also got more suddenly bearish by its CoT configuration. Okay, now let’s juxtapose that against silver’s weekly situation and what do we have?
What we have is a still-intact down trend from the 2011 blow off in silver vs gold and in nominal silver. Further, the ratio is at the top of its long-term down trend channel. Conclusion? Why, gold is better than silver.
A problem for the precious metals sector however, is that silver usually leads the rallies that most gold bugs tend to get excited about.
A problem for most global markets is that silver usually* out performs gold during phases of liquidity and risk ‘OFF’.
So is the silver-gold ratio going to break out of the down trend? Personally, I wouldn’t bet on it.
* In normal markets anyway, which admittedly the last year has not been with regard to some of its traditional functioning vs. the indicators.
Well the media always need to have a reason and this morning the reason for the hard down in the stock market is apparently second thoughts by investors on the Fed Minutes and QE tapering (with a side of Portugal/European problems).
What is actually happening is that it was time for a summer disturbance (at best) due to the factors we noted in the NFTRH excerpt on Monday. At worst the bull market is ending, but the favored plan is for a significant – possibly scary – drop that refuels the bull for one more thrust.
But that preference does not have a lot of conviction behind it. The only conviction I have right now is that the market is/was due for a July breather and this could be it.
People should have been prepared for this.
As the silver CoT report data systematically, almost robotically degraded into the September 2012 top (despite the seemingly bullish coming of QE3) NFTRH used to ask week after week “Who are those guys?” doing its best Butch Cassidy while evaluating the gathering short interest.
Below is the CoT graph from NFTRH 203 dated September 9, 2012. Week after week ‘those guys’ were ganging up on silver and we all know what soon happened; a harsh bear market down leg for the precious metals.
I had just done an NFTRH update using GDXJ’s 30 min. chart and the darned chart changed right in the middle of the post (funny thing, those short term views) and I decided that it would just put too much noise on anyone not already off on what looks to be a great weekend, weather wise here in the North East at least. So that is scrapped.
But part of the post also included the Gold-Silver ratio, which is at an extreme over sold condition. The chart indicates that gold stocks often decline after sharp declines in the GSR. All within the normal and bullish context of an extended bottoming pattern? There’s a very good chance that’s the case. But silver is over baked vs. gold, at least in my opinion.
In NFTRH 292 we reviewed this chart with some thoughts…
You will probably be seeing a lot of charts like this all over the internet going forward. The now obvious breakout in silver is going to get a lot of airplay as players take yesterday as a signal of a coming bullish phase. I mean, think about the Black Boxes and their ‘if/then’ code. What might the ‘then’ statement do in response to this week’s ‘if’?
The breakout is not surprising. NFTRH had been noting for the last many weeks that silver was going to “break out or break down” and that it was going to do it in this general time frame. Since I am not a Swami I refrain from making guesses, but simply try to dig up as much pertinent information as possible and get it into the analysis. *