What comes up, must come down, right?
Not quite. After going over the third cosmic velocity, an object is able to break away even from the Sun’s gravitational pull.
Nerd-speak aside, this is almost always the case in the markets. Even silver was not immune to this rule. After the breathtaking move above $80 in the first minutes of this week’s trading, its price collapsed.
At the moment of writing these words, the white metal is trading just above $70. Forecasting even higher silver prices in the near term seems very risky.
Quoting my previous comments on silver’s outlook:
“It turns out that silver used the Holiday rest well and was ready for another move as soon as the futures markets opened.
At the moment of writing these words, silver is up by over 3%, while gold is up by just 0.45%.
What does it change? Not that much, actually. We took profits from our speculative long position in silver as the easy part of the short-term rally was over, not because it was near-certain that this is it for white metal’s rally. That’s also why we kept our investment and insurance silver positions intact.
The implications for the mining stocks are likely to be like they were in the last few days - rather insignificant, moderate and/or temporary. As silver kept pushing higher, the GDXJ even gave up some of its earlier gains.
Will the next top be the final one for silver? Absolutely not.
Can the next medium-term top form any day now? Yes - the $76-$77 area includes the 1.382 Fibonacci extension based on the previous highs. This is where silver could reverse.
If it doesn’t, then we’re likely looking at $100 within the next few weeks - or even $120.
In my view, the scenario in which silver declines shortly is more likely, but if it confirms its breakout above $77, we might re-enter the long positions in it.”
There was a breakout above $77, but not a confirmed one. And the one that we did see, was just invalidated – and clearly so.
This is a sell signal and a suggestion that at least a short-term (or a medium-term) top in the silver price is in. Of course, there are still 100 of reasons for silver to rally in the long run.
The lower of the upside target areas for silver was reached (and insignificantly broken) – the next target is at about $120, which is where I expect silver to move eventually (either in 2026 or 2027), but not shortly.
Meanwhile gold…
Gold just invalidated its breakout to new all-time highs. In a single day, gold invalidated the move above $4,500 and above the October high. This is a MAJOR SELL SIGNAL.
And if it doesn’t look critical enough, let me remind you how gold topped in 2011.
Double top with the second top being higher.
This is exactly what we just saw.
If history is to rhyme – as it’s often the case – then we’re about to see a significant slide in the prices of precious metals and mining stocks.
While the GDXJ ETF didn’t invalidate its October high just yet, it seems that it’s going to happen shortly – after all, that’s exactly what gold just did.
Platinum is down by over 12% today. At the same time, it invalidated the move above $2,500 and above its 2008 high. This is a clear sell signal, and since we see it at the same time, when we’ve got an analogous sell signal in gold, they are both even stronger.
And the best (or worst) part is that the USD Index hasn’t even started to rally just yet, and it remains poised to do so.
The USD Index held above its April low, and it’s been consolidating in this area. The support held.
From the long-term point of view, the USD Index’s broad bottom is something that we’ve seen multiple times before.
The green arrows emphasize that we had the same kind of follow-up over and over again – big rallies. This time is unlikely to be different. As unlikely as it may seem, the USD Index is likely to rally. If you were monitoring the markets in 2008 and 2011, you may recall how unlikely it seemed at those times as well. And yet, it happened. And the USD Index is now much higher than it was at those lows.
Finally, if the general stock market finally declines in a big way, the commodities – and precious metals – are likely to be affected to a huge extent.
Want to see a canary in the AI-themed coal mine?
Tesla’s invalidation of the move above the previous highs is now crystal-clear. If anyone had any doubts, whether the AI-based stock market upswing has further room to run, the above provides the answer: this is unlikely.
All in all, it seems like the precious metals market just formed a major top. The next days will confirm it, but the major invalidations in both: gold and platinum and the size of silver’s intraday decline – without USD’s and stocks’ help – all suggest that “this is it”.
Thank you for reading today’s free analysis. We recently made major shifts in all parts of the portfolio. If you’d like to read more and stay up-to-date with the quick trades, intraday Alerts, and all the key details (trading position details, profit-take levels) that my subscribers are getting, I invite you to sign up for my Gold Trading Alerts or the Diamond Package that includes them.
Przemyslaw K. Radomski, CFA
Founder
Golden Meadow®