Gold moved higher yesterday but it's declining today. Silver did nothing yesterday and it's declining more significantly today. Silver seems to underperform gold during both: upswings and downswings. The gold:silver ratio has been on the rise since May 2011 when silver topped, but the trend has accelerated in the recent days. At this time we have the closest significant resistance level at the 67.5, which means silver close to $19 if gold declines to $1,290. There's also a resistance level (the 2010 high and the mid-2009 one) at 72.5, which would mean silver close to $18 if gold was to decline to $1,290. Please note that $18 is the level that we have previously mentioned as the likely target for silver if it breaks below the 2008 high.
Moving back to the gold:silver ratio, please note that during the previous major decline (one that was also widely covered in the media) - in 2008 - the gold:silver ratio moved sharply higher and rallied from 50 to approximately 88. The ratio bottomed at 50 in late 2012 and it's been rallying since that time. As mentioned earlier, the rally has just accelerated, which is not good for silver investors. It also indicates that the decline in the precious metals sector may not be over yet. The rally in the gold:silver ratio doesn't have to be as significant as it was in 2008, but it seems that we should see more underperformance of the white metal before the decline is completely over.
As a reminder, in case of the mining stock sector, our target level is most clearly visible in the XAU Index, and it's at 82, which is approximately 21% below the current value of the index.
Based on the above, we are changing our downside target for silver to $18, and, in consequence, we are adjusting our trading plan for the coming days/weeks. Here's the up-to-date version:
- When gold moves to $1,305 close the short speculative position in gold and open a long one (with $1268 as a stop-loss level).
- When silver moves to $18.20 close the short speculative position in silver and open a long one (with $17.65 as a stop-loss level).
- When the XAU Index moves to 84, close the short speculative position in miners and open a long one (with 80 as a stop-loss level).
The above are also the levels at which we suggest getting back on the long side of the precious metals market with half of your long-term investments (buy gold when it reaches $1,305, buy silver when it reaches $18.20 and buy mining stocks when XAU reaches 84). We will send a separate confirmation when it's time to fully get back in.
For now we continue to suggest having small speculative short positions in gold (stop-loss: $1,455), silver (stop-loss: $24.2), mining stocks (HUI stop-loss: 291).
In other news, there was a survey that asked participants where gold would move next week - the survey had 35 participants - professionals. Turns out that the outcome was practically identical (or at least very similar) with the survey that we had conducted on our Facebook page with 70 participants (note that the Forbes article was posted on April 19, and our Facebook survey was posted on April 18). Generally, this tells us that the sentiment is likely similar among professionals and individual investors in general and that our surveys are quite likely a good representation of the overall sentiment. We would need to have more surveys on our part and conducted by others, to state that as a fact, but for now, let's say that it's at least likely - we will launch another survey shortly.
As always, we'll keep you updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) at least until the end of May, 2013 and we will send additional Market Alerts whenever appropriate. We have prolonged the period in which you will receive Market Alerts daily for another full month.
Thank you.
Sincerely,
Przemyslaw Radomski, CFA
