Silver's recent surge might look promising, but is it just a deceptive rally ahead of a potential downturn?
Yesterday, in my intraday Gold Trading Alert about the GDXJ’s seemingly bullish reversal, I wrote that silver was just ahead of its triangle-vertex-based reversal. The point I made was that silver could rally into that reversal, and that a move higher in silver, and in mining stocks, might look bullish while being nothing of the sort.
Today, silver is doing exactly that. It is the strongest part of the precious metals sector, up almost 2% while gold is up a bit over 1%. On its own, that looks like strength, and for today's session, it might even be strength. If the stock market joins in and rallies into its own target, that could hand silver and the miners an additional push.
The thing to keep in mind is that this kind of strength is the kind I expect to be temporary.
Here is why. Silver rallying into its vertex is not a breakout signal, it is a reversal setup. The metal tends to be strong right before it turns, and the industrial side of silver means it moves with stocks. So, if equities push into their target over the next session or two, silver and the miners can ride along, and then both can turn lower together. A rally into a reversal point is not the same thing as a rally that lasts.
Please note that the rally was quite sharp, and it ended right on the vertex – it could be the case that the top is already in.
Whether we move even higher on a temporary basis – in my view – depends on the stock market. If it moves higher, silver and miners get a temporary tailwind.
More details follow for Gold Trading Alert / Diamond Package subscribers.
Thank you.
Sincerely,
Przemyslaw K. Radomski, CFA