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How Low Can We Go?

How Low Can We Go_2023

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We finally got the breakdown I was looking for yesterday, aided by the hawkish FOMC minutes, with follow through today, assisted by the far higher than expected ADP numbers today. Let’s see what the Non-Farm Payrolls do tomorrow.

Although the fundamentals may have been the trigger, the breakdown in Silver, in particular, and the rally in DXY, were a foregone conclusion, in spite of the emotionally charged chatter to the contrary. Why? Here is some of the “data” with respect to Silver ahead of its drop…

MAC 2 JAN 2023

Starting with the obvious:

Multiple negative divergences across all indicators. Momentum was falling as the price continued higher on an intraday basis (Silver actually peaked back on December 20, on a closing basis). This is a telltale sign of trouble ahead. Momentum typically leads price.

Ending diagonal / bear flag formations approaching an apex. Silver would have to decide to go one way or another imminently. The divergences coupled with these bearish formations strongly favored the downside.

Despite all ‘hope’ that everyone was short and this was a classic short squeeze, sentiment confirmed the exact opposite: The vast majority were all piled up on the long side of the market, making Silver ripe for a squeeze to the downside.

Then there was the DXY. Again, hope clouds rational thinking and talk of DXY and Silver rising together was catching on when there was no evidence of that occurring. Quite the opposite:

MACD 2 JAN 2023

Silver still enjoyed a near perfect inverse relationship to the DXY, with a correlation coefficient of -0.92.

As for the DXY, it has been long overdue a rebound and that is what the Fed triggered:


The multiple ‘positive’ divergences, the mirror image of Silver, signaled this rebound was coming. It’s now at 105 as I type.

As for Gold and the miners outperforming Silver on the way down, this should not be a surprise. The Gold:Silver Ratio telegraphed this two weeks ago, as did the Gold:GDX ratio. Just as Silver outperformed Gold on the way up, it is now underperforming Gold on the downside. This is called ‘beta’ and it works in both directions. The miners had been underperforming the metals on the way up and therefore are outperforming them on the way down, at least for now.

So where do we go from here? Silver and Gold have a lot of bullish sentiment to work off but they can do that sideways to down for a while. The DXY has a date with 106-110 next before it heads even lower again imho. The break of an ending diagonal typically leads to a ~50% retracement from whence it started and peaked, i.e. 18 and 24.77 in Silver, namely 21.40.

My targets on the downside remain as follows:

  • Gold: 1750-1700.
  • Silver: 23-21.
  • GDX: 27-25.

Should we get there, I’ll be buying within these ranges, given the pending wave iii of 3 to follow, the money wave!

Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

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About the Author

David Brady has worked for major banks and corporate multinationals in Europe and the U.S. He has close to thirty years of experience managing multi-billion dollar portfolios including foreign currency, cash, bonds, equities, and commodities. David is also a CFA charter holder since 2004.

Using his extensive experience, he developed his own process utilizing multiple tools such as fundamental analysis, inter-market analysis, positioning, Elliott Wave Theory, sentiment, classical technical analysis, and trends. This approach has improved his forecasting capability, especially when they all point in the same direction.

His track record in forecasting Gold and Silver prices since has made him one of the top analysts in the precious metals sector, widely followed on Twitter and a regular contributor to the Sprott Money Blog.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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