On Monday the price of silver went up 4.83% and so did shares of the Ishares Silver Trust (NYSEARCA: SLV). Earlier this month silver had a sharp drop after soaring high enough in August to take it briefly over $18.00 an ounce. Meanwhile this month gold came off $1550 to briefly fade below $1490 an ounce.
Those drops brought out a lot of bears to make calls for a big decline in the precious metals market like what happened in the Fall of 2016 and the gamblers among them even went to make wild bets in the triple short gold miners bear ETF (NYSEARCA: DUST). That ETF merely bounced and is now resuming its downtrend pattern of decay disintegration as you can see from this chart.
Personally I thought that the pullback that began earlier this month represented a pause and consolidation period that would lead to a rally later this year to new highs. Both gold and silver still seem set to consolidate more in my opinion, but Monday’s rally in silver pretty much slams the door on the bears who were calling for a big decline going into the end of this year.
Take a look at the price of silver for yourself.
Monday’s rally has taken silver high enough that it would take a lot of work for it to fall below its 50-day moving average. This is not how silver traded back in 2016.
At this time in September of 2016 silver was trading below its 50-day moving average and rolling over. Now it is still above that level to show us that those who say the action now is like the action was back then are simply mistake.
I’d note to that the silver miners are going up too. They are acting nothing like they did in September of 2016. Almost all of them were trading below their 50-day moving averages at this point back then too.
Now many of them are close to making new 52-week highs! Look at Silvercorp (NYSEARCA: SVM) for example, which I own.
Now one thing people are worried about is the commitment of traders report, because the commercial hedgers and producers inside the futures market have increased their short positions in the past few weeks. I saw another writer use this fact to predict a gold crash this weekend and got an email from someone asking about this overnight:
“At this time, Commercials are short 749,390 contracts and long 384,663 (http://www.321gold.com/cot_gold.html) for a net short of 364,727. In addition, Speculators are at a long-time high long and low short. This situation for Speculators has marked tops in gold — there are few left to buy
“Based upon your prior analysis and the current state of the COT, why are we not looking at a small (if not a massive) decline in gold?”
My answer – We are seeing a decline in gold. It started when gold came off of $1550 and is bringing us a pause/consolidation period in the metals market playing out right now.
In April I made a note that the previous major tops in gold came with the commercial net short position over 350,00. However, this in itself is not really a useful indicator for tops or bottoms. Take a look at this historical chart of gold with the commercial short position in blue below it.
The commercial short position is in blue on the bottom of the chart. If one would have said to themselves well we are at a record negative on the commercial short position so it’s all going to crash one would have made a serious mistake in 2004, 2005, and 2009 as those were three years in which that happened and gold simply continued higher.
What is happening is that the trading volume for most things in the financial markets has simply grown over the past two decades. You can see that on any long-term chart of the S&P 500. It also has happened in the precious metals markets. So there is no way to know ahead of time what is going to be the new record commercial short position that will mater.
You can see this in the US dollar index for example.
Note that the commercial short index in the US dollar made new records year after year after 2008. The last record it made was in 2015 and it simply went up even more after hitting it. The growth in trading volume in the futures markets helped make these new records.
It’s interesting to look at, but the commitment of traders report just isn’t a great timing indicator. It made a big warning on gold in 2012 as gold made a massive double top while there was a huge commercial short position. Oil did something similar in 2014. But what this report did was simply confirm the big topping patterns – which were the real important factor.
In the end the overall chart patterns of gold and silver and the action of the miners compared to the metal are the best indicators to use to spot key turning points. The big corrections have began when the mining stocks lagged the metals for a few weeks and not just one or two days.
Gold and silver barely dropped after the last FOMC meeting in which the Fed threw cold water on the idea of massive rapid rate cuts. The next potential dip is likely to happen if there is some sort of China/Trump trade truce, but it’s not likely to be a big drop that the bears are looking for but just a one or two day dip if it even happens.
In sum – Gold is consolidating in a range and silver is not acting bearish and neither are silver mining stocks. No one is right all of the time when it comes to the markets. The trick is to accept what the market tells you. A month ago I thought that the US stock market averages could be headed for a possible break down through their 200-day moving averages in September, but I realized when it rallied up that the window for such a correction was closing fast and adjusted my views accordingly.
It is now time for the bears in the precious metals world to do the same thing and for those that want to make some gains in these markets to take their positions. Even if it takes another month or two for gold and silver to go to new 52-week highs the leading mining stocks will lead the way higher first.
I just put up a video about new stocks lining up to breakout and favorite I own here:
In the end it is simply going to make a breakout to new highs to make these metals bears give up – and DUST players to wipe themselves out of the markets for good and simply go away. They are the ones sharing tweets of predictions of big crashes on Twitter. On Facebook others making annoying comments as there are many people who mistakenly think gold going up automatically means stocks must crash so they get threatened by it.
I get them all of the time.
These were comments I got in response to a post I made about gold looking more bullish in July. These people probably aren’t playing DUST, but this is the type of grief anyone who posts on Facebook gets from the masses – anything that doesn’t confirm what they already believe simply triggers some of them to lash out. The day will come though when the comments will all be positive on gold and not negative. It will happen when the masses all begin to chase. But we simply are not there yet.
For my video update on small cap stocks lining up to move go here:
-Mike
