History rhymes - this time the rhyme in silver is very clear. Let’s start with the ratio.
[Quoting my last Friday’s comments] And speaking of those “other markets”, let’s take a look at silver. Let’s start with the ratio between silver and gold as that’s where we recently saw something important and with clear implications for the price of white metal.
Silver soared not just on its own, but also relative to gold. I wrote silver’s outperformance is usually bearish on many occasions, but the intensity with which silver showed strength recently is so significant that it’s visible on a 14-year chart!
Indicators are great tools to average out what’s not important and focus on what is, and make specific situations from the past comparable. The two that are particularly useful for comparing the situations in case of the silver to gold ratio, are the Relative Strength Index (RSI) and Rate of Change (ROC) indicators.
When we saw RSI at or above 70 AND ROC after a visible run-up, silver topped. I marked those cases with red lines on the above chart. This combination of signals from both indicators worked in each case in the past 14 years, so the fact that we saw it once again does not bode well for the near-term future of the white precious metal.
Silver had soared over $32, then it invalidated the breakouts above the 2021 high and the $30 level, and now we see another attempt to break higher.
Will it succeed? That’s unlikely, as it just outperformed gold on a very short-term basis, and GME, the flagship meme stock just soared.
In other words, it seems to be the 2021 top all over again.
As we observe the silver-to-gold ratio and the significant indicators pointing towards a potential downturn, staying informed is crucial. Historical patterns suggest that silver's recent performance could mirror past peaks, signaling a possible decline.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief