Fake It Till You Make It: Will Silver's Motto Work on Gold? / Commodities / Gold and Silver 2022
While the USD show is gainingapplause, silver has decided to present its repertoire too. Was its rally justa magic trick or a good omen for gold?
Bondyields soared once again, just as I’ve beenexpecting them to for many months now. The reaction in some markets was asexpected (the USD Index soared), but in some, it was perplexing. Gold movedlower a little, miners declined a bit more, and silver… rallied. Who’s fakingit?
Well, perhaps nobody is. Let’s look atthe yields’ movement first.
The 10-year bond yields have just movedto new yearly highs and are also above their 2021 highs. This happened justafter they moved back to their 50-week moving average (marked in blue). For along time, I’ve been writing that the 2013 performance is likely to be repeatedalso in this market, and that’s exactly what is taking place right now. Bondyields are doing what they did back then.
If history continues to rhyme, we canexpect bond yields to rally further, the USD Index to gain, and we can predictgold at lower prices.
Speaking of the USD Index, let’s take alook at what it did yesterday.
It soared over 0.5 index points, whichwas the largest daily increase so far this year. This happened after the USDIndex moved to a combination of powerful support levels: the rising medium-termsupport line and the late-2020 high. The tiny attempts to move below thoselevels were quickly invalidated, and the USD Index was likely to rally back up;and so it did.
What’s next? The uptrend was not broken,so it’s likely to continue. In other words, the USD Index’s rally is likely tocontinue, and this, in turn, is likely to trigger declines across the preciousmetals sector.
Gold didn’t react with a significantdecline yesterday – just a moderate/small one – which some might view asbullish. I’d say that it’s rather neutral.
The rally above the 2021 highs in bondyields might have come as a shock to many investors, and they might not havebeen sure how to react or what to make of it. It might also have been the “buythe rumor, sell the fact” type of reaction. Either way, it seems to me thatwe’ll have to wait a few days and see how it plays out once the dust settles.
The volume that we saw yesterday washuge. After a period of relatively average volume, we saw this huge volumespike. I marked the previous cases with red arrows. In those cases, such volumeaccompanied gold’s sizable declines. This time, the volume spike accompanied a$4.10 decline, which might appear perplexing.
Fortunately, gold is not the only marketthat we can analyze, and – as it’s often the case – context provides us withdetails that help to make sense of what really happened. Let’s check the keysupplemental factor – silver’sprice action.
While gold declined a bit, silver soaredover $0.5! The volume that accompanied this sizable daily upswing was thebiggest that we’ve seen so far this year too. The latter provides additionalconfirmation of the importance of yesterday’s session.
What was it that happened yesterday thatwas so important?
Silveroutperformed gold on a very short-term basis!
This is profoundly important, becausethat’s what has been accompanying gold’s, silver’s, and mining stocks’ tops formany years. Knowing to pay attention to even small signs of silver’soutperformance is one of the useful goldtrading tips, and the extent of the outperformance is whatdetermines the importance of the signal (and its bearishness). The extent washuge yesterday, so the implications are very bearish.
Yes, silver moved to new yearly highs aswell, but silver is known for its fake breakouts (“fakeouts”), which usuallyhappen without analogous moves in gold and mining stocks. Since neither goldnor miners moved to new yearly highs yesterday, it seems that silver “fakedout” once again. Silver is up in today’s pre-market trading, and gold is uponly slightly, but the latter is not even close to moving to new 2022 highs.The GDX ETF is actually down in today’s London trading (at the moment ofwriting these words).
Speaking of mining stocks, let’s take alook at what happened in them yesterday.
In short, they declined – by over 1%,which is about five times more than gold. Since silver outperformed gold, whilegold miners underperformed it, the implications for the precious metals sectorare bearish.
Thank you for reading our free analysistoday. Please note that the above is just a small fraction of today’sall-encompassing Gold & Silver Trading Alert. The latter includes multiplepremium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’dlike to read those premium details, we have good news for you. As soon as yousign up for our free gold newsletter, you’ll get a free 7-day no-obligationtrial access to our premium Gold & Silver Trading Alerts. It’s really free– sign up today.
Thank you.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Toolsfor Effective Gold & Silver Investments - SunshineProfits.com
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