Two Steps Forward, One Step Back

The overall trend remains up in metals and miners. However, in the short term, there are risks in both directions. Silver is the best example.

For several reasons, I have been warning for weeks now that Silver could break down. 

It hit a negatively divergent higher high at $32 on July 11.

It broke upper trendline support (blue) the next day on July 12. It has not been able to get back above that trendline since, despite numerous attempts.

Instead, yesterday I forecast an “imminent” breakdown of the lower blue trendline next, and that is exactly what has occurred. 

Other than technical analysis, the Banks have their biggest net short position in “eight” years!

They continue to pile on the shorts whether the price rises or falls. This is far from bullish. Quite the opposite.

Sentiment is also extreme bullish, another contrarian signal pointing to the downside.

The DXY has been hammered recently, and as always, everyone thinks it is going straight down. When assets reach extreme highs or lows, I expect at least a rebound in the opposite direction, and that is occurring right now in DXY:

Suffice to say that if the DXY can get back above 104, it could extend to the upside “in the short-term”, weighing on Silver, Gold, and miners.

Where does Silver stand now?

It hit a low of $30.27 yesterday and peak of $30.80 overnight. It becomes rather simple now, imho. A move back above $30.80 would signal the bottom is in and up we go. Whereas a break of $30.27 could send Silver down to as much as the $28s again or even lower.

As for Gold, it vastly outperformed Silver recently, as the Gold:Silver ratio shows, but it has run into resistance at $2488.

It could go even higher first, but the risk-reward profile is turning down, imho. We have come a long way from ~$2300 to almost $2500, and a standard pullback should not be a surprise. Perhaps as little as a 38.2% retracement or as much as 61.8%, which would target ~$2350.

With all of that said, as I pointed out at the start, “The overall trend remains up in metals and miners”. Once these corrections are done, I expect Gold and Silver to go much higher. The only caveat is the possibility of a stock market crash. Should that occur, I expect a sharp but brief dump in the metals, much like in March 2020, which would be a wonderful buying opportunity because we all know what comes next: another Fed 180 to rate cuts and QE. Game over.

Absent short-term reversals, which always occur in every bull market, or a stock market crash, the road higher is still paved with Gold and Silver.