WARNING: If You Own Silver or Gold, Watch This

Precious Metals Market Analysis - February 13th, 2025

Key Concepts:

• Intermediate Term Correction: A temporary decline in price within a larger bullish trend.
• Bullish Consolidation: A period of sideways price movement after an advance, indicating a pause before further gains.
• Commitment of Traders (COT) Report: A weekly report detailing the positions held by different trader categories in futures markets.
• Speculators (Commercials/Hedgers): Traders who aim to profit from price movements, often taking on higher risk. Commercials are users/producers hedging risk.
• Advanced Decline Line (ADL): A breadth indicator showing the cumulative participation of stocks within an index.
• 200-Day Moving Average: A technical indicator representing the average price over the past 200 days, often used to identify support and resistance.
• Gold/Silver Ratio: A measure of how many ounces of silver are needed to buy one ounce of gold, indicating relative value.
• Negative/Positive Divergence: A discrepancy between price action and a technical indicator, potentially signaling a trend reversal.

I. Market Overview & Big Picture Analysis

The precious metals markets experienced a significant rally and are now undergoing an intermediate-term correction. The speaker emphasizes avoiding extreme viewpoints (e.g., gold to $6,000 immediately or the bull market being over) and anticipates a period of rangebound trading in the coming months. Despite the correction, the long-term outlook for silver remains bullish, as it is currently undervalued relative to the S&P 500. Silver has broken out of a 45-year base, and while a 47% correction has already occurred, a floor around $55 is anticipated. Historical corrections have ranged from 36% to 62%, suggesting further downside is possible, potentially revisiting previous support levels before a sustained uptrend.

II. Sentiment Analysis – Commitment of Traders (COT) Reports

The speaker revisits sentiment indicators, specifically the Silver Commitment of Traders (COT) reports. These reports categorize traders into speculators (often referred to as “gamblers”) and commercials (hedgers/producers). The focus is on speculator positioning, as they tend to be overly bullish at market peaks and overly bearish at bottoms. Currently, the net speculative position in silver is around 40,000 contracts, down from 90,000 contracts a few months ago. A further decrease towards 20,000 or zero contracts would indicate reduced speculation and potentially a low-risk entry point. The same principle applies to gold, where the net speculative position is currently 200,000 contracts, representing potential selling pressure. A reduction to 150,000 or lower would signal diminished speculation and a more favorable entry point.

III. Technical Analysis – Gold

The daily chart for gold reveals key support levels around $4,300 - $4,250, aligning with strong support on the weekly chart at $4,250 - $4,500. The initial support is at $4,600. Gold has already experienced a 21% correction, fulfilling a potential requirement for a 20% correction before reaching the $7,000 target by March 2027. The speaker anticipates a potential retest of the 200-day moving average in the spring, presenting a strong buying opportunity. The 200-day moving average is expected to continue rising.

IV. Technical Analysis – Silver

Silver is currently underperforming gold, as evidenced by the gold/silver ratio. While gold has shown a rebound, silver’s rally is weak, exhibiting negative divergences. Key resistance for silver is identified at $90. A break above $90 would validate bullish sentiment. However, the speaker expresses concern about silver’s support at $70, which is not holding strongly. A break below $70 could lead to a retest of the $55 breakout level, potentially creating a buying opportunity. The speaker acknowledges adjusting expectations based on new data, previously anticipating $70 as support.

V. Real Terms Analysis & Sector Strength

Despite short-term bearishness, the speaker finds the gold-to-S&P 500 ratio encouraging. The ratio has broken out and is holding the breakout, suggesting a potential shift of capital from stocks to gold. A similar breakout is observed in the gold stock-to-S&P 500 ratio, also holding its breakout. The GDX (VanEck Gold Miners ETF) advanced decline line (ADL) is showing a positive divergence (higher high in ADL while GDX had a lower high), indicating broad-based strength within the gold mining sector, even amidst the correction. This suggests the sector is not solely reliant on a few high-performing stocks.

VI. Trading Strategy & Resources

The speaker advises waiting for a potential retest of the 200-day moving average in gold as a buying opportunity. For individual stocks, a case-by-case analysis is recommended. The Daily Gold Premium newsletter service is highlighted as a resource for in-depth analysis, a top 10 company list, and a focus on identifying undervalued companies with 3x-5x upside potential. The service emphasizes evaluating companies at current metal prices to mitigate downside risk.

Notable Quote:

“Silver in real terms is cheap.” – Emphasizing the long-term value proposition of silver.

Data & Statistics:

• Silver Correction: 47% correction from peak.
• Historical Silver Corrections: Ranging from 36% to 62%.
• Silver Speculative Position: Currently around 40,000 contracts (down from 90,000).
• Gold Speculative Position: Currently around 200,000 contracts.
• Gold Target Price: $7,000 by March 2027.
• Gold Correction Requirement: Potential 20% correction before reaching $7,000.

Conclusion:

The precious metals markets are currently undergoing a correction after a significant rally. While short-term bearishness is acknowledged, the long-term outlook for both gold and silver remains positive, particularly silver due to its current undervaluation. Monitoring sentiment indicators (COT reports) and key technical levels (support, resistance, 200-day moving average) will be crucial for identifying potential buying opportunities. The speaker emphasizes the importance of a diversified approach and thorough research, particularly when investing in individual mining stocks. The positive divergence in the GDX ADL suggests underlying strength in the sector, despite the ongoing correction.