Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2022 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