Silver’s Bearish Rally

April 15, 2016

Silver moved sharply higher recently along with mining stocks, but unlike the latter, the white metal continued to show strength even on Thursday by holding up well…despite gold’s and mining stocks’ decline. What does this tell us?

It tells us that a decline is very likely to be seen shortly. Let’s see why (charts courtesy of

In yesterday’s alert, we wrote the following:

The silver to gold ratio and the indicators plotted on the chart show how often the above signal worked. The RSI close to 70 usually meant that an important top was in or about to be in, especially if the ratio was close to the declining resistance lined and / or the 200-day moving average. This is the case right now and the implications are bearish.

As you can read on the above chart, the signal was even clearer when the RSI moved above 70 and then declined back below it. Based on yesterday’s outperformance of silver relative to gold, the RSI moved above 70 and thus it’s only a matter of time (probably a very short amount of time) when the key sell signal is seen. It seems that one can already view the above situation as very bearish for the upcoming weeks.

Naturally, a question comes to mind: Why would silver’s temporary (!) outperformance be such a bearish sign in most cases? There is no specific fundamental reason for the above . However, in the short term, markets don’t move based on fundamentals, but emotions. The likely reason behind this phenomenon is the popularity of silver among small, individual investors and the relatively small size of the silver market (compared to other markets, like the gold market) and these investors tend to get in the market close to tops. Consequently, extraordinary performance of silver relative to gold may be viewed as a sign of the top. A similar phenomenon sometimes occurs for junior mining stocks (and you will find more details by clicking the above link) but in the past years, silver’s signals have become more meaningful and clearer than those from juniors.

On a side note, we expect silver to outperform gold in the upcoming years, but as far as short-term trading implications are concerned, the above remains to be a very useful trading technique.

What about silver itself?

It moved to our target area – its upper part – and declined. It seems that the top is already in and if it’s not, it seems that silver would not rally far as both resistance levels (the rising blue line and the October 2015 high) are relatively close.

Moving to gold, we saw a decline on relatively big volume (biggest daily volume so far this month), which has bearish implications. It seems that the decline will continue (especially if gold breaks below the red support line and the February-today head-and-shoulders pattern will be completed) and it appears that entering short positions when gold was at about $1,250 was a good idea.

Summing up, silver’s strong performance in the recent days is not a bullish sign and this – along with a weekly reversal in gold stocks and the breakout in the USD Index – makes the outlook for the precious metals market bearish for the coming weeks. Consequently, we think that a short position (full) in gold, silver and mining stocks is justified from the risk to reward point of view. Moreover, it appears very likely that the profits on the current short trade will become much bigger before this trade is over. We’ll continue to monitor the situation and report daily in our alerts. There is a 7-day free trial for our Gold & Silver Trading Alerts, which you get automatically after signing up for our free gold newsletter. Again, it’s free and if you don’t like it, you can always cancel. Sign up today.

Przemyslaw Radomski, CFA

Founder, Editor-in-chief, Gold & Silver Fund Manager

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All essays, research, and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


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Przemyslaw Radomski, CFA, is the founder, owner and the main editor of

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