Today market veteran, James Turk, told King World News that the silver market, which has been underperforming, is coiling for a major upside breakout.
Mixed Signals
January 25 (King World News) – James Turk: “There are so many mixed signals coming from the precious metals markets, Eric, it’s more difficult than ever to determine their price trends. Yesterday is a good example.
Normally gold and silver trade in the same direction. But yesterday, gold was down $15 (-0.7%) while silver was up $0.23 (+1.0%)…
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One could easily assume that markets are directionless, but they’re not when viewing the primary trend. Gold has been in a strong uptrend since bottoming at $1,046 in December 2015. It is at or near record highs when measured in terms of nearly all of the world’s currencies.
Silver is not as bullish, which explains why the gold/silver ratio recently hit a very rare level of 91. But the rarity of such a high ratio is also giving us a clue. By historical measures, silver is very cheap when compared to gold, which explains to a large extent why they are trading differently.
Silver’s Very Bullish Chart
The silver chart is bullish, but in a way that is different than gold. Gold is already in a long-term uptrend, but silver is still in its base. This disparity means that silver has a lot of catching up to do, or in other words, it will eventually be outperforming gold when it breaks above $50 and begins its long-term bull market uptrend. There is nothing in the following chart that suggests otherwise.
Silver’s Massive Reverse Head & Shoulders Base Coiling For Major Upside Breakout
The Silver Bear Trap
Over three years ago, I began identifying the $24-$22 price range an important support area. Support at $22 did break in 2022, but when silver again rallied back to $26, it became clear that break was a head-fake that formed a multi-month bear trap. More details became clear by May 2023.
Silver began forming the right shoulder of a reverse head-and-shoulders base that goes back over 2-1/2 years. This pattern represents months of accumulation of physical silver, most of which is locked up in strong hands looking for higher prices.
Silver Is Cheap
There’s no denying that silver is cheap, the key factor that leads to accumulation by strong hands. What other commodities or other assets can be bought at less than half its 1980 price?
When silver again approached $26 in December, I thought the rocket was ready for launch. It wasn’t to be, so here we are with silver again hitting the bottom of the buying range on Monday. It then bounced from support. Is this bounce the beginning of another shot to hurdle resistance at $26?
We can’t predict the future, but we know silver is undervalued. Also, on a short-term basis it is oversold. So we have to give silver the benefit of the doubt and assume another uptrend is beginning, but let’s take one step at a time and let silver tell its own story. The first step is silver hurdling above $23, which will increase the odds that it is again on its way to $26.
If at the same time the ratio falls to 80, that puts gold at $2080. I think these levels are reasonable near-term targets.
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