Silver soared aaand… We actually saw two powerful weekly reversals in a row. How bullish is that? It isn’t.
The white metal already had shown strength relative to gold, and it has broken above the previous highs. I warned that this shouldn’t be taken at its face value as the white metal is known for its fake breakouts.
Was this time any different?
Silver just moved below the 2021 high and below $30. For just a while, but still. The fact that this is the only kind of “strength” that silver managed to show today given what happened in GME’s pre-market trading is strongly suggesting that silver is on the verge of breaking lower.
I’ll move to GME shortly, and for now, please take a look what silver did on a weekly basis.
It was not one weekly reversal, but two! The second reversal even strengthened the bearish implications of the first one.
Ok, why would GME’s performance provide any kind of context for silver’s rally?
Because recently AND in 2021 they both rallied – and topped – more or less at the same time.
The recent top in GME formed more or less when silver (and gold) topped. And the reason why I’m mentioning it today is due to what GME just did in today’s pre-market trading.
GME jumped by about 100%, and then it sold off a bit.
…100%! This is not tiny move. This is a massive, immediate-term shift in the sentiment of investment public (!).
And this time, this sentiment is NOT affecting silver. Perhaps it’s not affecting it yet, but it seems more likely that silver is not going to be affected this time, as seller’s pressure is too high. The rally seems to have simply burnt itself out.
Why am I saying that? Because if silver was to soar here, it would at least show some strength. And it’s down today instead of being up at least decently.
Quite many stock market futures are up in today’s pre-market trading as well, and it seems that it’s all connected. Why would this be the case? Because it’s the week when two key interest rate decisions will be made. The Bank of Canada and the ECB will be making the moves – or not.
The market expects both rates to be cut by 0.25%, and seeing that might open the door for a rate cut also by the Fed. In fact, the Bank of Canada served as the indicator of what’s to come from the Fed quite many times.
The thing that appears to be taking place right now is people making bets that the rates will be indeed cut, and that the easy money era will be back in no time, fueling further rallies in stocks. Stock markets can’t fall anymore, remember? At least that’s what many people seem to think these days. Just like they thought about tech stocks in 2000. Or silver right before the SLV ETF was launched (and silver plunged shortly thereafter).
I won’t be guessing what the interest rates moves will be. Regardless of what the central banks decide, the market appears to have priced in the bullish moves, and we could even see the declines despite the rate cut (just like what we saw in 2008 after a 0.75% rate cut by Ben Bernake) as the “buy-the-rumor-sell-the-fact” type of reaction kicks in. What I prefer to do is to focus on what technical patterns are visible on the markets and who the buyers are. I analyzed the former in Friday’s flagship analysis, so I don’t want to repeat myself today (in short, it seems that stocks are topping worldwide), and the performance of the GME suggests that it is the investment public that’s buying, which is who is usually buying at or close to the tops.
And with falling stock prices (which are likely just around the corner), silver and miners are likely to slide in a big way. Speaking of miners, I’d like to remind you that the latter tend to underperform gold in the main part of the upswing but can actually be strong in its final parts – as a fake move. The opposite indicated the 2015/2016 bottom.
Are miners breaking higher here? Is this a bullish game-changer? No, it’s another time when we see the same thing.
The only difference this time is that if the stock market is topping (which likely IS the case), then miners have yet another reason to be strong at this time as the previous laggards (as laggards tend to catch up in the final parts of upswings).
Thank you for reading today's free analysis.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief