After Gamestop, silver was the next big target, but the investor frenzy seems to be showing signs of fatigue. Is the run on silver over?

I recently emphasized that silver’s volatile upswing is likely just temporary, and I discussed the Kondratiev cycle which implies much higher gold prices but not necessarily right away, because the value of cash (USD) would be likely to soar as well. The latter would likely to trigger a temporary slide in gold.

Well, was silver’s rally temporary?

Figure 1 – COMEX Silver Futures

That seems to have been the case. Let’s examine the short-term silver chart above.

On a short-term basis, silver is showing strength – also yesterday (Feb. 1), when it rallied slightly above the early-September high. Perhaps the final part of those who might have been inclined to buy based on the “silver manipulation” narrative and the forum encouragements in general, have decided to make their purchases over the weekend, and we saw the result in yesterday’s trading.

This, coupled with the miners’ relative weakness means that the bearish outlook remains intact. If it “feels” that the precious metals market is about to take off, but the analysis says otherwise, then it’s very likely that the PMs are topping. That’s what people see and “feel” at the top.

While silver moved close to its 2021 highs, the GDX ETF moved close to its 2021 lows – the relative underperformance of the latter is striking.

Silver invalidated the breakout above the 2020 highs. During today’s trading, silver is already down quite visibly. It’s now apparent that the silver world is not ending, and that silver’s price doesn’t have to keep on climbing. Is the silver shortage here? Not necessarily. Some bullion products might be in short supply and it wouldn’t be the first time this is the case. The size of the silver market is not that small after all.

Silver had many strong short-term run-ups in the past, and in the vast majority of cases, when they corresponded with relatively weak performance of mining stocks, it meant that lower prices for the precious metals sector are to be expected, not higher ones. This also implies a bearish forecast for silver in the medium term.

Figure 2 – VanEck Vectors Gold Miners ETF (GDX)

Are miners weak right now? Of course, they are weak. It was not only silver that got attention recently, but also silver stocks. The GDX ETF is mostly based on gold stocks, but still, silver miners’ performance still affects it. And… GDX is still trading relatively close to the yearly lows. Silver moved a bit above its 2020 highs – did miners do that as well? Absolutely not, they were only able to trigger a tiny move higher.

Interestingly, the most recent move higher only made the similarity of this shoulder portion of the bearish head-and-shoulders pattern to the left shoulder (figure 2 - both marked with green) bigger. This means that when the GDX breaks below the neck level of the pattern in a decisive way, the implications are likely to be extremely bearish for the next several weeks or months.

The GDX is still likely to form an initial (!) bottom close to $31, though.

Figure 3 - COMEX Gold Futures (GC.F)

Despite yesterday’s higher close, gold is already back down in today’s pre-market trading. All that we saw recently was a back-and-forth movement that was a part of a consolidation which started after gold declined earlier this year in a volatile manner.

Please note that the thing that prevented gold from declining further right away, was the rising red support line based on the March 2020 and November 2020 lows. In all cases, when gold was about to break below this line, it ultimately moved slightly higher. Right now, gold is making another attempt to break below it. It seems quite likely that this attempt will be successful.

You already know about the key, crystal-clear point that confirms this outlook – very strong relative performance of silver and very weak relative performance of mining stocks.

The second important short-term detail comes from the USD Index, which just moved to a new yearly high.

Figure 4 - USD Index

The move to a new yearly high is not that important as the move above the neck level of the inverse head-and-shoulders pattern. This breakout is not yet confirmed, but once it is confirmed, it’s likely to trigger another powerful upswing.

And another short-term rally here will mean a decisive move above the medium-term declining resistance line and USD’s 50-day moving average. Please take a look at the below chart for details.

Figure 5

Yesterday’s close of 91.04 was above both the declining blue resistance line and the 50-day moving average (90.65).

When we saw this kind of double breakout back in 2018, it meant that the bottoming process was complete and that one should buckle up for a sharp upswing. The implications are very bullish for the USD Index and very bearish for the precious metals sector.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim targets for gold and mining stocks that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

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Przemyslaw Radomski, CFA
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When Joe Public buys shares during a wave of euphoria, they do it close to a market top or before the beginning of a decline. Looking at you, SLV!

Silver rallied on Friday (Jan. 29), gold reversed its direction before the end of the day and so did miners, with the latter slightly underperforming gold. I wrote this before, and I’ll stress this once again today – the above is a perfectly bearish indication of an upcoming downturn in the precious metals market. This is not the first time it’s happening, and this combination of relative strengths worked reliably in the past. And we are not only just seeing that happening – we are seeing that at precisely the moment that is similar to previous patterns that were followed by sizable declines, which means that the relative bearish factors are even stronger.

This also applies to the huge inflows to the SLV ETF that we just saw most recently. Let’s take a look below.

Figure 1

The inflows were huge, which means that a lot of capital poured into this particular silver ETF. No wonder – it was very popular among Reddit (and other forums) participants last week. Naturally, these investors are – in general – not professionals and they are not institutions either. They are part of the “investment public”, which tends to buy massively close to market tops and/or before important price declines.

This indication might work on an immediate basis, but it could also work on a near-term basis – it depends on other circumstances. Did this work previously? Let’s check – after all, there were two other cases when we saw big spikes in SLV inflows – at the end of 2007 and at the beginning of 2013.

What did silver do back then? I marked those situations with blue, vertical lines on the chart below.

Figure 2

The beginning of 2013 was when silver was not only already after its top, but was also in the final part of the back-and-forth trading that we saw before the bigger declines in that year.

In late 2007, silver was still rallying, but it topped soon after that and subsequently plunged. At the 2008 bottom, silver was well below the levels at which the huge SLV inflows occurred.

Consequently, the spike in inflows is not a bullish sign. It’s a major bearish sign for the medium term, especially knowing that it was the investment public that was making the purchases.

Also, please note that the late-2007 spike wasn’t preceded by sizable inflows, but both the early 2013 and 2021 spikes were. Also, back in 2013, silver was already after a major top (just like right now) while in early 2007 it was breaking to new highs.

As of now, silver just broke to new highs, but since this move is not confirmed yet, it seems that the current situation is still a bit more similar to what we saw in 2013 than in 2007. Therefore, the scenario in which we don’t have to wait long for silver’s slide is slightly more probable.

The current volatility in silver suggests that the price moves are likely to be quick in both directions, so when the white metal tops it might be difficult to get out of one’s long position at prices that were better than one’s entry prices (provided that one joined the current sharp run-up).

Especially since stocks just declined visibly and confirmed the breakdown below the rising support line in terms of three consecutive trading days, a weekly close, and a monthly close.

Figure 3

Stocks have also invalidated their breakout above their rising red support/resistance line. And it all caused the RSI to form a double-top near the 70 level, which preceded the two biggest price declines in the previous years.

Figure 4

It seems that while the bigger investors head for the hills, the individual public continues to focus on Gamestop and its recent gains. However, remember that they have to cash in above their entry price to make a profit, which is not that probable.

The most important detail that we saw on Friday was the relatively low volume, on which Gamestop rallied. The buying power seems to be drying up and it seems that it won’t be long before everyone that wanted to buy, will already be “in”. And then, the price will start to slide as that’s what it simply does when there are no buyers and no sellers. Afterwards, a part of the public will sell, further adding to the selling pressure, which will see more declines, and so on. And as the final stock buyers turn into sellers, the top in stocks could be in.

If stocks slide further shortly, it will be particularly bearish for silver and mining stocks, which means that those who bought yesterday based on forum messages, etc., would be likely to find themselves at a loss relatively soon. This, in turn, means that the decline could be quite volatile.

Figure 5

On a short-term basis, silver showed strength – also today, when it rallied slightly above the early-September high. Perhaps the final part of those who might have been inclined to buy based on the “silver manipulation” narrative and the forum encouragements in general, have decided to make their purchases over the weekend, and we’re seeing the result in today’s pre-market trading.

This, coupled with the miners’ relative weakness means that the bearish outlook remains intact. If it “feels” that the precious metals market is about take off, but the analysis says otherwise (please remember about the first chart from today’s analysis), then it’s very likely that the PMs are topping. That’s what people see and “feel” at the top.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim targets for gold and mining stocks that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

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Przemyslaw Radomski, CFA
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GameStop! Reddit! Silver manipulation (that’s been discussed for over two decades)! It’s exciting but pay attention to these more important factors.

Is the above really the key thing that’s happening in the markets right now? No, it’s only the most interesting thing. I admit, what we’re seeing on the Internet right now is truly absorbing, but one should realize that it’s what used to happen multiple times in history. This time it’s simply more visible as the conversations and associated images are publicly available and widely distributed.

In yesterday’s intraday Alert, I commented on the issue of the likely implications of these cumulative purchases on the precious metals market as a whole and what difference they are likely to make over the course of the following months and weeks – next to none.

Well, there is one effect that I’m expecting to see. It’s the increased volatility during the following price declines – likely proportionate to what was so vigorously bought in the last few days.

Figure 1 – GameStop Corporation (GME) - NYSE

The above GameStop chart shows a near-vertical rally, and it also shows the spike in volume. The purchasing power seems to have dried up and the price – as expected – fell. Those, who bought at $300, were already at a 33% loss as of yesterday’s close.

The various forums (other forums joined in, it’s not just Reddit anymore) are filled with messages and images encouraging to “hold”. But sooner or later people will realize that without fresh buyers the price is going to fall, and one by one, they are likely to panic and sell – especially knowing that they won’t be “punished” by the “forum community” in any way, as it’s not known to the forum participants who is selling and when.

The topic of silver manipulation, paper silver and paper gold really is older than 20 years, and it’s been mostly the same argument over all those years. The price managed to rally from below $5 to about $50 – if there was a massive long-term manipulation, then it wasn’t particularly effective. If it didn’t prevent silver from rallying so far, then why would it prevent silver from rallying from below $20 to $200? Anyway, this topic is too broad to be fully discussed, even in a lengthy Alert – the point that I want to make here is that nothing new happened in the silver market – it just got more spotlight.

So, what’s more important and timelier than the above topics, even though it doesn’t get as much attention – and can herald a decline in the precious metals?

Figure 2 – S&P 500 (ES.F)

First, the almost-confirmed medium-term breakdown in stocks!

On Wednesday, the S&P 500 futures moved visibly below the rising support line and closed below it for the first time. Despite yesterday’s strength, stocks were unable to rally back above it and so far, today, stocks are moving lower. If the S&P 500 futures close today below this line, the breakdown will be confirmed by both: three consecutive daily closes and a weekly close. This will be a bearish sign for the short term.

If stocks slide further shortly, it will be particularly bearish for silver and mining stocks, which means that those who bought yesterday based on forum messages etc. would be likely to find themselves at a loss relatively soon. This, in turn, means that the decline could be quite volatile.

Second, there is also another market that could ignite the powerful decline in the PMs and miners – the rallying USD Index.

Figure 3 – USD Index (DX.F)

Despite the intraday decline, the USDX is once again close to its 2021 highs.

The USD Index is testing its previous 2020 highs, and it might (!) be forming the right shoulder of a short-term head-and-shoulders pattern. The key word here is “might”. If the USDX rallies above its previous highs (about ~91), this pattern will be invalidated and the short-term outlook for the USDX will be clearly bullish. This would also serve as a breakout above the inverse head-and-shoulders pattern (mid-Dec. low being the left shoulder, the early 2021 low being the head, and the recent low being the right shoulder), which would have even more bullish implications (with the price target above 92).

Would this be enough for gold to decline to $1,700? It might not be enough, but it might be enough for the miners to move to my above-mentioned initial downside targets ($31 and $42.5 for GDX and GDXJ, respectively).

So, the bearish storm seems to be brewing. How are the precious metals responding? Let’s take a look at gold.

Figure 4 – COMEX Gold Futures (GC.F)

Gold shrugged off yesterday’s “exciting news” coming from the internet’s forums. It rallied initially, almost touched its declining resistance line, and then reversed, thus erasing the previous gains. It’s now trading pretty much at the same levels where it was trading two days ago. The outlook remains bearish and yesterday’s reversal actually makes it even stronger.

Figure 5 – COMEX Silver Futures (SI.F)

Silver is visibly stronger than it was a few days ago, but if the precious metals sector is about to head lower (especially given the breakdown in stocks) this would be normal even without the entire “let’s buy silver” forum theme.

And miners?

Figure 6 - VanEck Vectors Gold Miners ETF (GDX)

Miners invalidated the breakdown below the neck level of the head and shoulders pattern. Invalidations of these breakouts tend to be “buy” signals. BUT yesterday’s session has “this time really was different” written all over it.

Part of the purchase encouragements on forums were for mining stocks. While silver has indeed rallied yesterday (and so did AG, which was particularly promoted), the GDX ETF moved higher only somewhat. It still closed more or less at its mid-January low and it didn’t manage to erase Tuesday’s decline.

Overall, I think that the proper context is the relative weakness of miners and not the direct implications of the technical invalidation.

Moreover, please note that if the symmetry in terms of shape between both green boxes on the above chart is to be upheld, then it shouldn’t be surprising to see a quick volatile upswing that’s very short. In fact, since the volatility now is smaller than it was in late April 2020, what we saw yesterday might have already been the analogy to what had happened back then.

All in all, the outlook for the precious metals market remains bearish for the following weeks, regardless of what the next few days will bring.

Also… Do you remember about bitcoin? Some time ago, I wrote that the bitcoin situation made the overall situation in currencies similar to late 2017 / early 2018.

Figure 7 - Bitcoin Vault (BTC.V)

Just as we saw back then, bitcoin soared while the USD Index plunged. Then both markets reversed.

Figure 8

That was also the time when precious metals and miners (and stocks) topped.

So, what’s new?

We just saw another clear confirmation that this is the very final inning of the rally. You probably heard that in the final part of a bull market, everything that’s in it soars. If it’s a gold bull market, then even stocks that have “gold” in their name will likely rally even though they might have nothing to do with the precious metals market. People don’t care to check, and emotions are too high to bother checking what they are actually buying.

Well, there’s a cryptocurrency that started as a joke, but then became a relatively big market.

Dogecoin.

The reason why I’m mentioning it is that dogecoin just soared…

Figure 9

And it had previously soared in this way in early 2018, a few weeks after bitcoin topped.

This is exactly what one would expect to see at a market top, based on common sense (analogy to buying just about anything close to the top), but the fact that we already saw pretty much the same thing in bitcoin, dogecoin, and the USD Index at the top 3 years ago should be flashing a big red light even for the most bearish of USD bears and most bullish crypto bulls.

Remember, early 2018 was also the moment when the stock market and PMs topped.

The above indications are on top of myriads of other factors pointing to lower precious metals and mining stock prices – this is all much more important than forum posts – even very convincing ones.

Please note that today’s volatility is somewhat expected - it’s Friday (options expire) and it’s also the final session of the month. Quite many people and entities might want to push prices and indices in their favor, so that options expire on their preferred side of their options’ strike prices. So, whatever happens today might easily be erased in early February.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of the full analyses that our subscribers enjoy on a regular basis. They include multiple premium details such as the interim targets for gold and mining stocks that could be reached in the next few weeks. We invite you to subscribe now and read today’s issue right away.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief

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