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The Macro Gold-Silver Relationship

By CommoditiesJun 24, 2014 02:42PM GMT Add a Comment
 
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After making fools of the Gold-stock bears, the initial thrust off of the right side of the bottoming pattern is making heroes of the bulls -- especially those who remained steadfast in their bullishness throughout the bear market. Indeed, there is now some chest thumping going on by Team PermaBull.

The first move has been impressive in bursting upward off of what NFTRH has called ‘the 205 parameter’ (a right-side shoulder point of a large Inverted Head-and-Shoulders). The initial move is maturing amidst the bullish cheer.

The Gold Bugs Index
The Gold Bugs Index

We have done extensive work on various time frames and components of the precious-metals sector, beyond the weekly view of HUI above. Of particular interest lately has been the Silver-gold relationship and its relevance beyond the insular and highly obsessed upon precious-metals sector. There is an entire macro story playing out.

The chart above is a simplified map of the HUI’s bottoming process. The red-dotted line is there to show one level of potential resistance. Indeed, this level on a weekly chart (245-250) cross-referenced well with the same level shown on a daily chart for different reasons. So did its implied support level at 225+/-.

We call that confluence and we like confluence of data points in refining probabilities in market management.

Bottom Line

There has been a lot to like in the precious metals lately, but certain conditions are stretching toward limits, like the silver-gold ratio, which is either going to continue upward and eventually change the macro or it is going to reverse, probably soon.

In a real bull phase, it is not wise to sell out all positions unless you are strictly a trader, but some profit taking is always allowed. It’s your risk and your capital after all, and you do not owe anything to the perma bulls. For my part, I am taking profits on big runners like Royal Gold (NASDAQ:RGLD) and Silver Wheaton (NYSE:SLW) and looking more toward value in the exploration and young producer areas. They are out there.

While I don’t tend to broadcast NFTRH’s most important analysis far and wide, I do believe in publicly asking people to keep it real and rational. There will be pullbacks, likely from readily identifiable levels. Often there will be pullbacks in individual stocks (as I notice in two quality exploration/developer companies as I write this post).

The positive moves to form the right side of the big bottoming pattern on HUI are now indicating that general sector pullbacks could be good buying opportunities (we have specific support levels documented). So again, it is okay to take some profits along the way and re-deploy on lower risk opportunities.

The only differences between the precious metals sector of today and that of the bear market are that today it stands a chance of finishing a maturing bottoming pattern and entering a phase when a ‘buy the pullbacks’ regimen will work well. But interim pullbacks will come and they will come from logical resistance areas as sentiment gets too frothy.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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