After gold broke above a critical resistance level, held for the past five
years, precious metals’ investors are now wondering, “what’s in store for
silver?” While gold surged from $1,340 to $1,440 in just one week last
month, silver only went up a mere $0.70. Thus, the Gold-Silver ratio
increased from 89/1 to 94/1, in the same five-day period.
So, the BIG QUESTION many precious metals investors are asking, “Is
silver going to follow gold’s move higher?” And, in several
price trends in the past, silver does follow gold higher but also outperforms
the yellow metal in the later stage.
To understand the dynamics of the silver price, we must realize it is
based upon two aspects of the market:
- Technical Analysis
- Fundamentals
While many in the precious metals community discount or don’t believe in
technical analysis (I was guilty of this for years), the majority of traders,
investors, hedge funds and institutions most certainly do. So, if we
ignore these technical levels or formations, then we are also blind to how
price discovery is being made in the market… yes, even with market
intervention.
Now, I am not saying that the current price discovery of silver at
$15.25, is based on sound fundamentals if we compare its real value as a
store of wealth to all the DEBT, DERIVATIVES, and JUNK ASSETS held in the
world, but rather, how it is being priced by the leading DRIVERS in the
market… which are traders, investors, hedge funds and institutions.
To better understand how silver is being currently traded, you must know
what these leading PRICE DRIVERS are looking at. Furthermore, many
precious metals investors say that they don’t care about the short-term price
movement or technical analysis, but when the silver price happens to fall to
a low (or is underperforming gold or the market), then there is no shortage
of BELLY-ACHING, and COMPLAINING by the very same people who supposedly
ignore this information.
So, instead of watching Kitco for daily price actions, hoping and praying
for the silver price to finally start moving significantly higher, if we look
at the technical analysis, it gives us some important clues. Again, I
still believe the value of gold and silver will be some of the best assets to
own when the over-leveraged financial system and economy finally crash, but
if we pay attention to the technicals, they do indeed provide some hints, as
they did when gold broke out above $1,360 in a big way.
For example, gold’s price BREAKOUT above $1,360 occurred in a
technical formation called, an ASCENDING TRIANGLE. Here is my
chart showing how gold’s price shot above that $1,360 level:
According to technical analysis, a breakout above the Ascending Triangle
Top Line is very bullish. Thus, traders, investors, hedge funds, and
institutions use this information as a motivation to take confident positions
in gold. Now, what are the silver price technicals saying??
Well, if we look at the 40-year monthly chart for silver, its
price has been trading in a SYMMETRICAL TRIANGLE formation:
The blue dashed lines show this Symmetrical Triangle formation.
Furthermore, you will notice that when silver finally broke above the KEY $14
Resistance Level in 2007-2008, it shot up to $21 rather quickly. That
$14 Resistance Level remained since 1983, but recently has acted as a MAJOR
SUPPORT LEVEL. Now, if we take a look at a close up of this
Symmetrical Triangle formation, you will see how tightly silver is trading in
it:
There is no coincidence that silver is trading in-between this symmetrical
triangle. However, a symmetrical triangle formation suggests a breakout
will occur, but it doesn’t indicate whether that will be UP or DOWN.
Thus, market drivers are keeping a CLOSE EYE on the silver price to see which
way it will break out of this triangle formation.
I will be explaining this in much more detail in an upcoming video.
Yes, I stated in the past that I would have already made a video, but I have
been putting together the charts and will likely publish a new Youtube video
in 10-14 days. Please stay tuned.
Major participants in the silver market have been following two important
trend lines in silver over the past several years. The first one is the
50 Month Moving Average (50 MMA), and the second, is the rising bottom trend
line:
Again, there is no coincidence that silver has been trading right up
against the 50 Month Moving Average since the middle of 2016. Please
take note that the rising bottom trendline is also the bottom part of the Symmetrical
Triangle. Silver has not broken this lower trend line since
2004. Will it? Well, it could, but I doubt that it would
do so for years because silver is now severely undervalued with respect to
gold and most other assets.
Moreover, the direction to which silver initially BREAKS OUT of
its symmetrical triangle may depend on the price direction of gold. So,
if gold trends upward, even with corrections lower, then traders will likely
believe silver will break-out ABOVE the symmetrical triangle formation that
it has been stuck below since early 2013.
Of course, this information only provides short-term price movements that
traders, investors, hedge funds, and institutions look at in determining the
market price of silver. THIS HAS NOTHING TO DO WITH THE
LONG-TERM EXCELLENT FUNDAMENTALS OF OWNING SILVER. But, to get to that
point, we are going to see it show up in the technicals. Again,
more of the details in my upcoming video.
Lastly, many believe that the silver price may go lower or underperform
gold during the next recession or weakening economy. At first glance,
this makes perfect sense because a lot of physical silver demand comes from
the Industrial Sector. However, if we look at another long-term
chart, the Gold-Silver ratio fell to its lowest when U.S. unemployment was
close to its highs. When the Gold-Silver Ratio falls, then the
silver price is outperforming gold, and the opposite is true when the
Gold-Silver Ratio increases:
The upper part of the chart shows the Gold-Silver Ratio while the bottom
of the chart is displaying the U.S. unemployment rate, which is currently at
3.7%. Yes, the U.S. Government is manipulating the unemployment
data. We all know that. But, if we just go by the data as
an indicator, in 1983, when the employment data WASN’T MANIPULATED, the
Gold-Silver Ratio fell to 30/1 when the unemployment rate reached 10.5%.
Furthermore, it wasn’t until the U.S. economy and markets collapsed after
2009, did the silver price shoot up to $50. So, when the U.S.
unemployment rate was 9.2% in 2011, near the highs, the Gold-Silver Ratio
fell below 30/1.
Here we can see that the silver price outperformed gold in a big
way during two major recessions and elevated unemployment rates. Thus,
the fear by precious metals investors that silver will do worse during the
next recession may not be true and hasn’t been the case during the past two
major recessions.
Also, you will notice that the Gold-Silver Ratio is hitting the upper
level of 95/1. While it could go higher, the ratio always reversed lower
back to the mid-level 65/1 Ratio, or even lower.
There’s a lot more to share and explain about silver, so please
stay tuned to my Youtube Video update. Right now, the Fed is
fighting a market correction, and recession with continued Dovish statements
since the Dow Jones Index suffered its worst Christmas Eve trading day
ever. However, they haven’t GONE ALL IN YET with lowering interest
rates and starting up QE (money printing). If they finally resort to
doing this, we are going to see what happened to gold in June take place in a
much BIGGER WAY in the precious metals. And, I would imagine silver
will still outperform gold in the end.
SRSrocco Report
