As we kickoff another week of trading in November, gold and silver are following through on last week’s gains and are now on the verge of breaking out of powerful reverse head & shoulders patterns.
November 8 (King World News) – James Turk: The last time we spoke, Eric, we discussed the powerful head-and-shoulders pattern that was developing in gold. That pattern continues to develop, even though it has been a real battle. You will recall that $1835 is the neckline that needs to be hurdled, and I was hopeful that would happen in November. It may now happen this week. Gold is only a chip-shot away from that level.
Friday’s demonstration of strength in gold is important. There was a $35 low-to-high price range, then gold closed near its high. So far today, gold is holding Friday’s level, which is a good indication of underlying strength. That’s really good news for gold bulls, but we also have some wonderfully good news for silver too.
Silver is also forming an inverted head-and-shoulders pattern as well. It is not unprecedented but it is rare for both precious metals at the same time to give us this show of strength through a basing pattern illustrating huge accumulation. Take a look at this chart of December silver.
Silver’s Powerful Reverse Head & Shoulders Formation
The neckline on this chart is $24.80. If silver completes this pattern by hurdling that level, I expect a quick move up to $28, which is the top of its 15-month trading range.
And here’s the important point, if silver does climb higher from here, it may finally be the time that silver hurdles $28 and starts moving higher. After all, that is what precious metal bulls have been expecting given the rising levels of inflation all around us.
So here is how I see things unfolding in the days ahead…
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Silver has been lagging, as indicated by the Gold/Silver ratio. It takes around 75 ounces of silver to equal the price of one ounce of gold. Historically, that is very high. That’s about to change if silver can break below the 70 level. Remember, the ratio reached 32 in 2011.
For gold, normally the right shoulder takes no more time to complete than the left, but not this time. The process has been dragging on because the last thing governments want to see now is the gold price soaring along with everything else as inflation continues to tighten its grip, and not just on the dollar, but the entire global economy.
But the markets know the true cause of inflation, as Milton Friedman made clear many years ago. “Inflation is always and everywhere a monetary phenomenon.” When central banks print too much currency out of thin air like just about all of them around the world are now doing, the purchasing power of currencies will fall and price of goods and services will rise.
Maybe the central planners are hoping for a miracle that Milton Friedman is wrong, but I think they will be disappointed because monetary history shows that in the long run, gold always wins. So has the long run arrived? We’ve been patiently waiting for that to happen over the past 15 months. It is now time for gold and silver to start showing what happens when inflation takes hold.
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