From the Desk of Ian Culley @IanCulley
Precious metals deserve the benefit of the doubt.
These shiny rocks are in the early stages of their next secular bull run. But I won’t let my bullish bias detract from the obvious: Gold has seen brighter days.
Overhead supply dominates the charts while risk appetite cools and prices fall toward critical support levels.
Is it time to buy the dip?
No, especially as investors focus on more attractive investments…
The strongest trending assets outperform their alternatives. (Buy the strongest, sell the weakest.)
And every asset group has its strong man leading the way. For precious metals, it’s silver.
Gold and the gang benefit when their “strongest performing asset” is their crazy cousin – silver.
Silver often spearheads a proper risk-on rally in precious metals as it surpasses gold.
But that’s not what’s happening right now:
Instead, silver is lagging in the near term after failing to post a higher high in June.
Buyers are growing weary of gold’s sideways action. It not only shows in a falling silver-gold ratio but also in silver mining stocks versus the physical metal:
The $SIL/$SLV ratio hit a new decade low last week. Not bullish.
Imagine water permeating the soil, reaching the deepest patches of a root system. Silver mining stocks are those “deepest patches.”
Precious metals need buyers to find their way to silver mining stocks, providing healthy risk-seeking behavior.
Notice the 2016 and 2020 rallies in gold coincided with SIL outperforming SLV.
Those runs were explosive!
Interestingly, a falling SIL/SLV ratio accompanied gold’s 2022 and 2023 rallies toward former highs.
Any additional campaign to all-time highs in gold should be held suspect until a relative bid makes it down to SIL.
Precious metals need all the bullish fervor they can conjure to sustain a rip-roaring rally.
The problem: Money flows where it’s treated best. And right now, that isn’t gold.
Remember, we’re only interested in the strongest trends and those assets catching higher on absolute and relative terms.
Gold will struggle to meet those requirements as long as interest rates rise.
Check out the 10-year yield overlayed with the crude oil-gold ratio:
These two lines reveal market forces in action as crude outperforms when rates rise, and gold takes the lead when rates fall.
Fresh 52-week highs in the crude-gold ratio indicate the market is rewarding investors for buying crude over gold, or energy over precious metals.
I’m getting emails about energy stocks and crude oil, not gold or silver mining names.
Precious metals will have their day. And it will likely catch many off guard when they finally do.
Today simply isn’t that day.
Investors prefer energy to gold – and rightfully so – energy is hot!
Instead of contemplating buying the dip in precious metals, scoop up the strongest names in the energy space.
You’ll have plenty of time to stack gold when signs of risk appetite and relative strength return to these shiny rocks.
Stay tuned!
Click here to watch this week’s Gold Rush Video:
Let us know what you think. We love hearing from you.
Thanks for reading.
And be sure to download this week’s Precious Metals Report below!
Allstarcharts Team
