Gold and silver have been all over the map in 2014. To figure out what’s next for the metals this article assesses their deep and long term status as speculative assets and the relationship between the two metals and determines what must happen to reverse their continuing decline. Read on!
The above are edited excerpts from an article* by Chad Karnes (etfguide.com) as also posted** on SeekingAlpha.com both under the title Is Gold Ready To Bounce?
The following article is presented by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and the FREE Market Intelligence Report newsletter (register here; sample here) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Through February, they were both up over 10% and outperforming stocks [but] since then they have given back…[much, if not all] of their gains….[with gold] up 4% for the year, while silver has declined 2%, underperforming its counterpart by 6% YTD.
Sentiment and Technicals Suggest a Coming Bounce
…As was stated in our 6/4/2014 Technical Forecast, “Gold is also now oversold, the first time that has happened on the precious metal and its ETF since the June 2013 $1200 (GLD $115) price low panic”. The following day gold and silver were up 1% as their next bounce likely kicked off. Should we expect this bounce to hold?
The Long Term Gold/Silver Relationship
…It is pretty much understood that silver is the more volatile of the metals, the one traders turn to for more speculative interests…[but] to really accept that…we turn to a chart comparing its historical relationship with gold.
The chart below shows [that]:
- when gold is outperforming silver…(when the ratio is rising/flat), the metals markets are typically flat or in decline or, at a minimum, susceptible to a pullback (as was the case in the 2007 precious metals rally which ultimately gave back all those gains in 2008).
- when silver is outperforming gold the metals markets are undergoing rallies…
The Short Term Gold/Silver Relationship
The next chart displays this relationship over the short term.
- Since the 2011 precious… top, gold has continued to outperform silver with a few short term opportunities to get long the metals before the next leg of their decline.
- The short term metals rally in mid-2013 occurred as the gold:silver ratio broke down from its trend channel shown in red on the middle of the chart (after almost a year silver finally started to outperform gold in 2013 as the gold:silver ratio fell). A similar occurrence happened during the early 2014 metals rally (…as the ratio also turned down as sentiment reached extremes) [but] these were just short term opportunities.
The Future for Gold and Silver
So far in 2014 silver has underperformed gold by 6%… [causing] the longer term gold to silver ratio to continue higher and warning us of a continued decline in the metals’ markets.
- Until silver can start outperforming gold on a weekly and monthly basis (the first chart’s ratio turns down), investors should not expect any longer term precious metals rally to take hold.
- In the meantime investors should expect only short term long opportunities available to the gold bugs (GDXJ), like the one we are expecting now as this ratio breaks down from its short term trend…
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Gold Bugs likely will remain disappointed until the gold to silver ratio turns decidedly down and silver can finally start to outperform gold, helping us recognize a precious metals rally that has legs.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://www.etfguide.com/is-gold-ready-to-bounce/ (© 2014 ETFguide, LLC) The ETF Profit Strategy Newsletter and supporting publications provide investors actionable trading and investing opportunities utilizing technical, sentiment, and fundamental analysis sprinkled in with some common sense.)
**http://seekingalpha.com/article/2261883-is-gold-ready-to-bounce?ifp=0 (© 2014 Seeking Alpha )
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