Silver Eyes Fourth Quarter Rebound / Commodities / Gold & Silver 2019
Precious metals markets enter the often favorable fourth quartertrading season with the potential to reinvigorate their major uptrends.
Despite posting impressive gains in the third quarter, gold and(especially) silver finished it on a downbeat note.
On Monday, sellers smashed silver spot prices down3.6% to test the $17.00/oz. level.
The disappointing finish to the month and the quarter does raisethe possibility that momentum selling could continue to drag prices lower inthe near term. However, quarter-end profit taking and portfolio shuffling byinstitutional futures traders could also work in favor of an immediate pricebounce.
The big question is whether silver’s strong breakout this summerto multi-year highs was a fluke… or a prelude to bigger things to come.
At the time, multiple indicators pointed toward it being thereal deal – the first big impulsive wave within a larger new cyclical bullmarket for silver. Price itself is the most important technical indicator, andthe silver price had broken out of a long consolidation phase to spike up justshy of $20.00/oz by early September.
The subsequent pullback came as no surprise to our readers. Wewarned on August 29th, with silver rallying above $18.50/oz,that it “may finally be due for a pause, if not a pullback.” We noted that agauge of weekly upside momentum was “in extremely overextended territory.”
Now that some of the overenthusiastic speculators who enteredthe market at higher prices have been washed out, we suspect that the remainingbulls have strong hands and will tend to be buyers rather than sellers on anyfurther price declines.
RatioTrade Opportunities in Silver and Platinum
We will be watching the gold:silver ratio closely during dayswhen precious metals markets rally for confirmation that silver is leading.
In a healthy bull market for the metals, silver leadson both the upside and the downside – both rallying and declining more sharplythan gold.
As silver prices surged earlier in the year, the gold:silverratio declined rapidly from a quarter-century high of over 93:1 to as low as80:1. In September, the ratio spiked back above 86:1 as silver sold off.
The chart of the gold:silver ratio appearing below suggests wecould soon see a turn in favor of silver. In recent years, the ratio has tendedto key off its 200-day moving average. It ran straight into that line onMonday.
The 200-day moving average is starting to point down for thefirst time since 2016. That suggests the major trend for the gold:silver ratiois also down – which, again, would be bullish for silver in particular andprecious metals in general.
Another ratio that tells an interesting story is that ofgold:platinum.
Earlier this year, gold commanded a historically large premiumover platinum (1.8:1). Up until the current decade, the norm was for gold totrade at a discount to platinum.
Fundamentally, the platinum market hassuffered from softening automotive demand as automakers havefavored palladium for use in catalytic converters. Palladium, which historicallytraded at a discount to platinum, now trades at a premium to both platinum andgold.
At some point, the value proposition offered by platinum shouldbecome compelling to both industrial consumers and precious metals investors.But at this particular point, the beaten down metal shows no technical signs oftrending higher against either palladium or gold.
The most compelling ratio trade in the metals space at themoment appears to be to favor silver over gold.
Conservative investors will want to still hang on to a core goldposition. However, more aggressive investors who are inclined to trade mightconsider selling gold in exchange for silver.
If the gold:silver ratio trends in favor of silver in the monthsand years ahead, the magnitude of the move should be more than large enough tooffset the transaction costs associated with switching in and out.
For example, if the ratio falls to 32:1 (a level last seen in 2011),then silver would nearly triple in value versus gold. At 32:1, a $1,600/oz goldprice would imply $50 silver.
Of course, it’s more likely that gold would show significantnominal appreciation on the way to a 32:1 gold:silver ratio. A $2,500 gold pricewould imply $78 silver – more than 4.5 times today’s spot silver quote.
These are not price forecasts, but rather just illustrations ofpotential price scenarios that (among many others) could play out over time. Asalways, precious metals investors should retain a long-term perspective and beprepared to weather near-term volatility.
Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2019 Stefan Gleason - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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