Friday’s session was exceptional for several reasons and the most profound ones are gold’s and silver’s sizable intraday rally, and the subsequent slide. The reversals that both metals created are practically screaming signs pointing to what’s next. The way mining stocks behaved, and how gold closed relative to its previous tops also have important implications, but let’s start today’s analysis with the former.
Silver, the less valuable (at least so far) of the most popular
precious metals and many small investors’ metal of choice, reversed in a particularly meaningful way.
Friday’s PMs Reversals
All three parts of the precious metals sector: gold, silver, and mining stocks (HUI is a proxy for
gold stocks) moved to or above their respective 50%
Fibonacci retracements based on the September – October declines, but only silver closed visibly below the 38.2% retracement. That’s one of the reasons why
silver’s reversal was so important. Silver simply moved up and down the most. That’s far from it all, though. The big deal about this reversal is how similar it is to what silver has done in the previous years after similar reversals.
You see,
silver is known to rally very high and outperform gold and mining stocks right before or while forming a top (often creating a fake
breakout a.k.a. fakeout), but it doesn’t necessarily happen on one day. Silver might rally for a day or a few days, when gold and miners are not doing much, or simply visibly less than silver. At times, the above and the subsequent slide take place during the same trading day, but it is not very common. This means that such sessions are relatively easy to find among other days simply because they stand out.
We won’t be able to provide you with a complete list of silver’s profound daily reversals, but we will feature some of them that should make you think at least twice before viewing the initial “strength” in the white metal as being anything close to bullish.
Let’s start the silver time machine and set it back to about three years ago.
Whoosh!
Silver’s Timeless Reversals
We’re now in the second half of 2016. Precisely, at the beginning of July. Silver just soared several dollars, but it reversed some of its daily gains. All
silver analysts are cheering as silver ended the session higher than the previous one, and the white metal gained a bit more on the following day. That was true, but the perceived – bullish – implications were entirely off. Silver had just reversed and that intraday high turned out to be the yearly high.
Before declining in the most profound way (in
October), silver flashed the daily reversal once again, at the end of September. One could say that the mid-August session was also a daily reversal, which also had bearish implications for the following days and weeks.
Based on what happened in 2016, it seems that silver’s daily reversals should at least raise an eyebrow.
Let’s get back to the time machine. This time, we’re setting it to 2013.
Whoosh!
It’s mid-June 2013, and silver is after a steady decline. It just moved almost a full dollar higher during just one day, but it gave away most of these gains before the session was over. The following session opened a bit higher, but silver closed the day lower. And it declined on the next day. And the next one too. And then silver plunged almost $2 in just one day, only to decline some more in the following days. And it all started with the daily reversal.
The take-away is that silver’s daily reversals might be worth more than just a raised eyebrow.
The time machine still has some fuel left. Let’s get back one additional year.
Whoosh!
It’s the first day of
October 2012 and silver just rallied to new highs, after rising about $12 in less than 2 months. Silver didn’t manage to hold these intraday gains, and closed the day only a bit higher. The outlook seemed quite optimistic. But in reality, it was very, very, very far from that. The daily reversal marked the end of the volatile counter-trend rally, and started the decline that continued for years (in fact, the odds are that this medium-term downswing continues up to this day). In other words, since the first day of October 2012, we haven’t seen silver prices at higher levels.
All in all, silver’s daily reversals should do much more than just raise both of one’s eyebrows, especially when they take place in October. They should make
investors prepare for much lower silver prices - if not immediately, then relatively shortly. And we have just seen a profound daily silver reversal on Friday.
Today's article is a small sample of what our subscribers enjoy on a daily basis. For instance today, we’ve also covered the silver time machine lessons. Then, we discussed the outlook for gold and miners in more detail, and also gold performance from European currencies’ point of view. Finally, we’ve also included a helpful summary of the gold move’s determinants at play. Check more of our free articles on our website, including this one – just drop by and have a look. We encourage you to sign up for our daily newsletter, too - it's free and if you don't like it, you can unsubscribe with just 2 clicks. You'll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts to get a taste of all our care.
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Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
Sunshine Profits - Effective Investments through Diligence and Care
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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.