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Friday, March 17, 2017

3/17/17: The State of the Precious Metals Market

Right now, I'm looking at buying silver (SLV) as the next trade, but before that, a short position in gold (GLD) might be desirable.

Why are we interested in buying silver vs gold? The gold to silver ratio is too high right now. Historically, silver should be expected to outperform gold for the coming years. In fact, the green lines represent local peaks in the gold to silver ratio. When it turned lower, this also was very good for the stock market as well. Perhaps this signals an incoming wave of inflation, higher interest rates and economic growth. Gold does better when stocks are overvalued. However, I don't see strong enough evidence yet to dip my toes into buying silver. The various charts I use to track it don't show a strong edge at this time.



Why might gold be a good shorting opportunity? Namely, it is in a stage right now where it is more likely to head lower. Fundamentally, the Fed continues to hike interest rates, which isn't good for gold since it yields nothing. From a chart perspective, I believe it is about to roll over, as is apparent on its weekly chart which has formed a resistance level. Perhaps when weekly support comes in, we'll have a better buying opportunity in precious metals.


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