Is Silver’s Break Out An Early Bullish Signal For Gold?

We have been closely monitoring gold’s price action in the last two weeks as the metals attempt to make huge breakout. Earlier this week, we showed Two Charts That Gold Bulls Will Love in which we compared the U.S. dollar’s moderate price action with the increasingly constructive picture in gold. Last week, we indicated how Gold And Silver Are About To Make A Huge Breakout and showed Gold’s 7 Bullish Indicators.

Indeed, the U.S. dollar is not quite strong, giving some relief to the commodities complex. Moreover, leading commodities are showing signs of selling exhaustion. Combined with an outspoken fear from the U.S. Fed to hike interest rates, it seems clear that precious metals, being the first commodity to collapse 2.5 years ago, has all the conditions in place to make a strong breakout.

In line with our observations, we feature today an astonishing chart from Short Side Of Long, with their comment that “out of four major asset classes within the precious metals sector, only Silver has recently managed to overcome its downtrend line resistance, while gold mining companies are still pressing against their downtrends, just like Gold itself.”

The chart shows that silver has already broken out from a major 3-year declining trendline. Silver has a track record to lead the precious metals complex. Is silver’s early break signalling a trend change? Or is this simply another false breakout, as we have witnessed quite some over the last years? Given the above conditions, we believe there is a fair chance that this breakout is for real.


The scenario we deem most realistic? All precious metals and the miners will break out in the coming weeks, taking out the January top, but the rally could stall somewhere near the top of last summer. Next, the excitement will fade, as the breakout point will be tested in 2016. Obviously, media and gold disbelievers will be pretending that the yellow metal is set to collapse again (below $800 /oz obviously), but at that point we believe the breakout will hold. If that scenario plays out as described, then the retest we just described will be the last chance to jump into this sector at these low prices.

Let’s see how things play out.

Chart courtesy: Short Side Of Long

Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing