Silver Price Forecast: Silver’s Relative Signs

December 8, 2020

silver coins

Silver is like gold’s cheaper and more volatile little brother. The smaller market size of the white metal relative to gold makes it susceptible to wilder price swings. So how has it been performing relative to gold’s corrective actions since November? And finally, where do the miners stand in all this?

The entire precious metals sector moved higher on Tuesday, and one might wonder if this changes anything regarding the outlook. In short, it doesn’t. The move higher was in line with what I previously described as a likely outcome.

It was quite possible for gold to rally up to its September lows, and the low in gold futures in terms of the closing prices was $1,866.30. Yesterday’s closing price for gold futures was exactly $1,866.

So, did anything unusual happen? Not really.

Looking briefly at gold, can it move even higher from here? As discouraging (or encouraging, depending on one’s perspective) as this answer may be, it’s a “yes”. The US Dollar Index is currently trading at about 90.8, and its downside target is at about 90, so there is room for another short-term slide. Such a slide would be likely to trigger a rally in the yellow metal. How high could the rally go during this final part of the counter-trend corrective upswing?

Perhaps to the mid-November high of about $1,900. Even though gold might theoretically rally all the way up to the early-November high, I don’t see this as being likely.

At the moment of writing these words, gold has corrected more or less half of its November decline. Did silver correct as much?

Actually, silver corrected visibly more. Its already at its mid-November highs and relatively close to its early-November top. This means two things:

  1. If gold rallies to its mid-November high, silver could rally to its early-November high – to about $26.

  2. Silver is definitely outperforming gold, which is something that we tend to see before sizable declines – that’s one of the key silver and gold trading tips.

Moreover, please note that silver has a triangle-vertex-based reversal point in the final part of the month, which could imply that this is where silver forms a final, or temporary bottom. This could have implications also for the rest of the precious metals sector, as its parts tend to move together in the short and medium term.

Given the bearish post-Thanksgiving seasonality in the case of PMs and the tendency for them to form local bottoms in the middle or second half of December, it seems likely that the above is likely to be some kind of bottom.

Let’s get back to issue of the relative performance. While silver tends to show strength relative to gold before bigger declines, gold stocks tend to be relatively weak. Are they?

Of course they are! Even taking into account yesterday’s quite visible upswing, gold miners have clearly not corrected half of their November decline

Miners are not even close to their mid-November highs, let alone the early-November highs.

So, yes, miners did move higher yesterday, but examining their recent rebound and comparing it to what happened in gold and – especially – silver, provides us with very bearish implications.

What we see in the PMs is just a correction, not the start of a new, powerful upleg. If it was, miners would have been leading the way higher. We currently see the opposite.

Over a week ago, I wrote that miners could move to the previous lows and by moving to them, they could verify them as resistance. The previous – October – low is at $36.01 in intraday terms and at $36.52 in terms of the daily closing prices. Yesterday, miners closed at $36.50.

So, while gold closed at its September low (in terms of the daily closing prices), gold miners closed at their October low.

If the USD Index declines one more time before bottoming, and gold rallies, miners could also mover temporarily higher. How high could they move? I think that the mid-November high of about $38 (intraday high: $38.35, daily close: $38.01) would provide the kind of strong resistance that miners might not be able to breach.

Still, this upside is based on two big IFs.

The first “if” is if the USD Index declines to 90 or slightly lower – it’s extremely oversold, and the CoT reports confirm it.

The second “if” is if the precious metals sector really reacts to USD’s decline with a visible rally. In the past few weeks, gold shrugged off quite a few USDX declines. And miners shrugged off even more positive news.

Consequently, it seems that trying to take a profit from the possible, but not very likely, immediate-term upswing is not the best idea from the risk to reward point of view.

Summary

The following days are not likely to be pleasant times for anyone who jumps on the bullish bandwagon just because prices moved higher in the previous months. But what’s profitable is rarely the thing that feels good initially. As silver often moves in close relation to the yellow metal, forecasting gold’s rally without a bigger decline first is thus likely to be misleading. Silver is likely to slide as well. The times when gold is continuously trading well above the 2011 highs will come, but they are unlikely to be seen without being preceded by a sharp drop first.

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Przemyslaw Radomski, CFA

Editor-in-chief

Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are 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 deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, 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 SunshineProfits.com.

1 cubic foot of silver weighs approx 655 pounds whereas 1 cubic foot of gold weighs more than half a ton.

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