Friday afternoons are my favorite part of the week, but not just because the weekend is starting. Instead, it’s because we get fresh weekly candles to analyze the long-term trends of the securities and assets in our universe.
And this week, we’ve got a big development in Silver. Prices went out at their highest weekly closing price since September 2013.
Let’s take a look at what it means and how we’re trading it.
In the Precious Metals space, Gold has been the place to be for the last year after breaking out of its 7-year base to new all-time highs. Since then prices have been trending steadily higher, reaching two of our price objectives at 37,000 and 44,500. Prices have stalled out for the last 2 months or so, but if prices remain above 44,500 then its long-term uptrend remains intact and we need to be erring on the long side with a target near 56,800.
Click on chart to enlarge view.
Silver has been stuck in its own 6-year base and we’ve traded the range during this time period, but this week’s close above 48,000 has confirmed the start of a new long-term uptrend. More importantly, this breakout above its former highs allows us to define our risk on the long side.
As long as prices are above these former highs near 48,000 on a weekly closing basis, then this breakout remains intact and we can look for a move up towards 58,000. And based on the size of these base breakouts and the fact that Silver is beginning to participate on an absolute basis, we think the Precious Metals rally could extend for years. That means we can eventually see Silver back at its all-time highs set in 2011 near 74,000.
Now that both Gold AND Silver are trending higher on an absolute basis, the question remains: which do we want to own?
Well, despite the short-term surge in Silver, it looks like we still want to be erring on the side of owning Gold. Below is a long-term chart of the Silver vs Gold ratio which has been in a steep downtrend for most of the last decade. Momentum has been in a bearish regime since 2011, only getting overbought briefly in 2016 before rolling over again to new lows.
During Precious Metals’ Bull Markets we typically see Silver outperforming Gold, and this recent move may very well be the start of that, but we need to see more first. Prices are just now retesting their lows from July 2019, so the ratio’s series of lower highs and lower lows remains intact.
Believe me, when this trend reverses we will have plenty of time to participate in it. It rarely pays to be a bottom-fisher, so we’re not jumping the gun just yet. Instead, we’ll let price and momentum lead the way…and for our timeframe, both are suggesting we stick with Gold and see how this breakout in Silver develops in the coming weeks and months.
And if we’re wrong about this broader thesis, our risk is very well-defined and minimal in both Gold and Silver. If this breakout in Silver fails and prices are back below 48,000, then Gold is likely back below its risk management level of 44,500 and we cannot own either of them.
But for now, the trends in both are higher.
What do you think? Is this the start of a new Bull Market in Precious Metals? Or are these breakouts destined to fail?