PRECIOUS METALS APPEAR TO BE TURNING UP -- BUT SILVER IS IN THE LEAD -- SO ARE ITS MINERS -- SINCE SILVER IS PART INDUSTRIAL METAL, IT SHOULD DO BETTER THAN GOLD IN A STRONGER ECONOMY
GOLD IS TURNING HIGHER... Money appears to be flowing back into precious metals. Chart 1 shows the GOLD SPDR (GLD) rising above a falling trendline extending back to early September which suggests that the four-month downside correction may have run its course. It's also trading at the highest level in seven weeks. Its 14-day RSI line (top box) has also turned up. And its daily MACD lines (middle box) appear close to doing the same. Gold miners are also turning up. Chart 2 shows the VanEck Gold Miners ETF (GDX) also in a potential basing pattern, and nearing an upside breakout. Gold miners have been doing better than the metal over the past couple of months. That can be seen by the rising GDX/GLD relative strength ratio in the upper box in Chart 2. That's a positive sign because gold miners usually lead bullion higher in an emerging uptrend. Other precious metal miners, however, are doing even better.
SILVER AND ITS MINERS ARE EVEN STRONGER... Chart 3 shows the Silver iShares (SLV) also rising above a falling trendline, and in the process of turning back up again. The SLV found support above its red 200-day average; and has climbed back over its blue 50-day line. And it's rising faster than gold. That can be seen by the rising SLV/GLD ratio in the upper box. Silver led gold higher during July and August when both commodities were rising (we'll explain why shortly). And lower between September and November when both were correcting downward. It would be normal to expect silver to take the lead again if both are turning higher. The same is true of silver miners.
SILVER MINERS ARE LEADING THE RALLY... Chart 4 shows the Global X Silver Miners ETF (SIL) rising to the highest level in nearly four months, and nearing a test of its early September high. That puts it well ahead of the metal itself. And gold miners. That can be seen by comparing the two mining ETFs on the price chart. In addition, the rising SIL/GDX relative strength ratio in the upper box shows silver miners outperforming gold miners throughout the recent corrective phase. And they're likely to continue doing that. So why is silver rising faster than gold?
SILVER SHOULD DO BETTER IN A STRONGER ECONOMY... Silver is both a precious and an industrial metal. That means that it does well when gold (another precious metal) is rising. But it does even better when industrial metals (like copper) are rising faster. Which is the case at present. My December 7 message explained that the recent upturn in copper relative to gold was due primarily to more optimism on the global economy. Which was accompanied by an upturn in Treasury yields. The same is true with the silver/gold relationship.
LINK TO TREASURY YIELDS... Chart 5 overlays the 10-year Treasury yield over a ratio of silver miners divided by gold miners (SIL/GDX ratio) for the past year. They fell together throughout the first half of the year before turning up together during the second half. Falling bond yields earlier in the year reflected fears of a slower global economy which favored safe havens like gold (and Treasuries). Higher global bond yields over the last four months have signaled more optimism. And helped turn the U.S. yield curve positive again. One of my previous messages suggested that gold prices could rise in that scenario (especially if the U.S. Dollar continues to weaken). But economically-sensitive industrial metals (and producers) should rise faster in a stronger global environment. That favors silver and its miners over gold. So if you get a bar of gold in your stocking tomorrow, you might want to consider exchanging it for a silver one.
Merry Christmas and Happy Hanukkah.
