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Gold and Silver Triggers

Judging by the precious metals forums, it's confirmed... everyone is bearish and short gold and silver, waiting for Goldman Sachs prediction to come true. But what if they're wrong? More importantly, how will you know if those prognosticators are wrong and if they are wrong, won't the precious metals take off due to the wrong-sided short covering?

All very good questions and despite the majority of pundits being bearish and short, we just have a hard time joining them. If I recall, we already had an emotional washout of the longs in December 2013 and more recently this month. Also, the foreign currencies have been doing quite well and the dollar not so well, so doesn't this bode well for precious metals? Also, commodities have been on a tear and even today appear to be on the run again.

My preference is to watch the relative strength ratios and get an indication from them as to where the truth lies. Recently, the Silver/Gold ratio set lower lows, but without confirmation from the momentum of RSI or MACD. This would suggest, as it has in the past, that silver is about to outperform gold and that usually happens when both metals are moving up. Also, silver this week dropped to lower lows without gold doing the same, resulting in a non-confirmation. The ratio chart itself seems to have a bullish flag pattern that suggests a big move up is coming in this ratio.

$SILVER:$GOLD Chart
Larger Image

Many people have been talking about the bearish looking price charts of gold and silver, but the relative strength ratio charts look bullish and are telling a different story. It will be interesting to see how the markets pass judgment next week.

 

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