Friday, March 9, 2018

Prepare For A Major Breakout In Precious Metals

It looks like we are ahead of a major breakout in precious metals. Look at the chart below:


The chart shows a popular precious metals performance measure - a silver / gold ratio. As you surely know, gold and silver prices go in tandem but silver overperforms gold during a bull market and under-performs during a bear market in precious metals.

That is a theory. In practise, very often the ratio is a lagging indicator. For example, in the beginning of this bull market in gold (no, I am not kidding - in my opinion, we are still in a bull market in precious metals) the silver / gold ratio was going down (January - March 2016). Then it followed the rule and went up.

Interestingly, in July 2016 the ratio printed its cyclical top and since then it has been going down sending us a message that not everything was good with the precious metals market. And yes, since July 2016 gold was not able to break above the latest cyclical top at $1,350 - $1,375 per ounce.

These days the ratio is once again very close to its multi-year bottoms (red and blue circles on the lower panel of the chart). However, the latest bottoms (red circles) were established when gold prices were very close to their bottoms as well.

This time (the blue circles) the ratio is at one of  its lowest levels but gold is not.

In my opinion, very soon the ratio should start another move up (if history repeats). It means that gold should follow the ratio but this time the move in gold should start from the current level ($1,330 an ounce). 

If I am correct (and lucky), we should see a major breakout in gold (and silver ) prices soon.  

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