It's Too Early To Break-Out The Champagne And Claim The Top Is In For Silver

Although it seems quite likely the top is in, here's what silver price will make it crystal clear...

by Przemyslaw Radomski via Sunshine Profits

The gold to silver ratio is one of key precious metals metrics to watch. Sometimes, the yellow metals outperforms the white one, and vice versa. How is the relative value of both metals measured against each other doing currently?

The gold to silver ratio based on spot prices moved back up, after verifying the breakout above the 100 level. The spot-price-based ratio is currently trading above 101.

The pre-market silver move is particularly interesting, as silver's tops are often most clear due to their shape - it's quite often a big, clear spike.

The above 4-hour chart shows that silver just reversed once again. The previous reversal was quickly followed by even higher silver prices, so it's too early to open the champagne and claim that the top is definitely in, but given silver's recent clear outperformance of gold and the verification of the breakout above the 100 in the gold to silver ratio, the above seems quite likely.

Once silver futures break below the $17.17 level (the most recent low), it will be almost crystal-clear that the top is in. The next very short-term target area for silver is between $16.30 and $15.80. Then, after a brief pause, we would expect the decline to continue.

The HUI Index invalidated the breakout above the 300 level, but it didn't invalidate the breakout above the 2016 high (286.05) just yet. Once it does that, the bearish picture will become even more bearish.

Ideally, we would like to see the HUI Index close below the highest weekly close of 2016 - 278.61.

If the stock market slides here, the above-mentioned invalidation of the breakout above the 2016 highs will be almost inevitable.

But will they slide?

While we get into details in our Stock Trading Alerts (and Stock Pick Updates when it comes to individual stock selection), we can quickly say that stocks are currently in a make-or-break situation.

They closed the price gap yesterday and they declined in today's pre-market trading. Depending on the next short-term move in the stock market, we will see either a decisive breakout above the above-mentioned price gap and the 61.8% Fibonacci retracement level, or invalidation of the move above it and likely another sizable downswing.

In my opinion, as long as the breakout above the upper border of the price gap is not confirmed, another move lower in stocks is quite likely.

Before summarizing, we've been asked about the increase in volume of the DUST ETF in the last several days, and whether it means anything. In short, it most likely doesn't. Volume details are provided in terms of numbers of shares, not in terms of their value. As the price of DUST declined, the same amount of dollars means that more shares are going to be traded. For instance, the value of the NUGT or GDX didn't change that much recently on a relative basis, so it doesn't really confirm anything special as far as the price-volume analysis is concerned.

Thank you for reading today's free analysis. Please note that it's just a small fraction of today's full Gold & Silver Trading Alert. It also covers the stock market prospects as they go influencing the miners. They say that the partially informed investor is just as effective as partially trained surgeon... You might want to read the full version of our analysis before making any investment decisions.

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Sincerely,Przemyslaw Radomski, CFAEditor-in-chief, Gold & Silver Fund Manager