What will it take for gold to make new all-time highs?
A weaker US dollar and falling real yields are likely candidates for leading catalysts.
We can also add a significant unwind in commercial positioning to the list.
Meanwhile, it’s a range-bound mess.
Let’s stick to the basics. Uptrends – at the core – come down to more buyers than sellers. And risk-on/risk-off intermarket ratios provide excellent tools for tracking whether bulls or bears dominate a particular market.
After the recent bout of selling pressure, one precious metal risk ratio is approaching a potential inflection point…
Check out the Silver Miners ETF $SIL versus the iShares Silver ETF $SLV:
The SIL/SLV ratio speaks to the risk appetite in the same vein as the Gold Miners ETF $GDX versus the Gold ETF $GLD.
SIL/SLV simply sits further out on the risk curve than GDX/GLD.
(A rising line indicates a risk-on environment, while a falling line implies de-risking behavior.)
The last time this ratio traded at these levels in early 2016, gold put in the low of its current decade-long base. And both snapped back, ripping higher along with other precious metals.
A similar reaction to the one witnessed in the first quarter 2016 would go a long way for the bull case, as gold churns just below its former all-time highs.
On the flip side, a deeper correction in SIL/SLV suggests more headwinds ahead for precious metals.
In the meantime, we have clear levels to trade against on the absolute price charts.
SIL is retesting the same key level we used to define our risk earlier this year.
It hasn’t been the cleanest move. But we like SIL long above 27 with an initial target at the April pivot highs at approximately 33.50 and a secondary objective of 40.
We’ll know quickly if we’re wrong, as we have no business owning SIL below 27.
It’s a similar setup for SLV:
We have a bullish outlook toward 27 only if it holds above its recent pivot low. SLV is off-limits below 20.50.
For all the talk surrounding how terrible precious metals have been, SLV is posting a series of higher highs and higher lows. That’s the definition of an uptrend!
Yes, silver and precious metals have plenty of work to do. Sure, it’s trading at the lower bounds of a multi-year range.
Nevertheless, the trend in SLV has been undeniably higher since it bottomed last summer.
Perhaps it’s messy, but the bulls remain in control.
Gold is hanging tough. Mining stocks are carving out constructive bases – all against a backdrop of underwhelming risk appetite.
Precious metal bulls deserve the benefit of the doubt.
And if SIL/SLV posts a bullish reversal, you have to imagine gold is ripping to new all-time highs.
Stay tuned!
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