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The second quarter ended difficult for the precious metals complex, and neither gold (GLD) nor silver (SLV) were immune to relentless selling pressure. This brought the year-to-date gold performance back into negative territory at (-) 6%, with silver not far behind at (-) 2% near $ 26.00 / oz.
While this negative reaction to falling real rates and a still very accommodating Federal Reserve is daunting, it’s important not to lose sight of the big picture and to be aware of how a key ratio works. So far, the price and this key indicator remain on bullish readings, and the violent correction is now bringing sentiment closer to a bullish reading as well. Let’s take a closer look below:
(Source: TC2000.com)
One of the most important ratios to watch out for is the Silver / Gold Ratio for the Precious Metals Complex, and as noted above, this indicator continues to show higher highs for Silver relative to the price of l ‘gold. For those calling for a high in the precious metals complex, this seems unlikely, given that we are seeing the exact opposite of this ratio as we were in 2011. If we look above, we can see that the Gold hit a new high in the third quarter of 2011, but at the same time the silver / gold ratio had plunged, making a lower high and a lower high. This ratio is reaching higher highs and is far from reaching a lower low in the current case. So as long as the gold / silver ratio stays below 85 and in an uptrend, I see no reason to be overly concerned.
(Source: Daily Sentiment Index data, author’s chart)
Switching to sentiment, bullish sentiment continues to decline over the past week, now standing at a reading of just 25% bulls. While this is not a bullish reading and this indicator drops often, we are getting closer to a bullish reading against the current levels. This is a massive improvement from late February when everyone was rushing into silver trading hoping to force a squeeze and healthy improvement from May when we still had a significant number of bulls in this trade. Based on the current reading of 25% bulls, we are near the lowest readings since the start of the year, with only one bull for every three bears based on that reading. The ideal situation would be a further decline in this indicator despite the absence of a silver low.
(Source: TC2000.com)
Finally, looking at the technical picture, silver flashed a rare oversold signal this week, with the first green bar since last September. While these green bars don’t always lead to an immediate rise, they usually provide low risk entry to start a position in the metal, and I started a small position for this reason. The key to confirming this signal would be a trade above $ 27.00 / oz, which would reverse some of the selling pressure on June 17-18 and suggest that buyers have not only entered the trade, but are also able to overcome the resistance that we have seen. nearly $ 26.40 / oz over the past two weeks. It’s also worth noting that while this pullback has shaken the short-term picture, the long-term picture remains intact with silver comfortably above its long-term moving averages.
While we currently only have 2/3 of indicators on bullish readings for silver, further weakness should also push sentiment towards a bullish reading which would set up a very low risk buy if the metal fell below $ 24.75 / oz. For now, I see a decent entry into metal on this weakness below $ 26.00 / oz, so I started a small position. It’s easy to get discouraged after two weeks of heavy selling pressure, but it’s important to embrace these fixes as they help erase the sentiment and happen a few times a year. So, for investors looking to buy low now that the weaker silver bulls have been kicked out of this trade and are starting to give up, this looks like a decent opportunity to start buying down.
Disclosure: I am long GLD, SLV
Disclaimer: Taylor Dart is not a registered investment advisor or financial planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy or a recommendation regarding a securities transaction. The information contained in this document should not be interpreted as financial or investment advice on any subject. Taylor Dart expressly disclaims all liability for actions taken based on any or all of the information contained herein.
SLV shares fell $ 0.26 (-1.07%) in pre-market trading on Tuesday. Since the start of the year, the SLV has fallen -1.47%, compared to a 15.08% increase in the benchmark S&P 500 over the same period.
About the Author: Taylor Dart
Taylor has over a decade of investment experience, with a particular focus on the precious metals industry. In addition to working with ETFDailyNews, he is a leading writer on Seeking Alpha. Learn more about Taylor’s background, as well as links to his most recent articles. Following…
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