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What does it mean that gold is tanking to new correction lows while silver remains relatively firm?

Gold (daily chart) is on the very cusp of slipping the last ditch support noted in yesterday’s update using a weekly chart showing that support. If gold holds this little thread of support the bottom could be getting made now. If not, the update targeted the downside.

Silver, on the other hand, is well above its late August low and back above key support at 18 to 18.50. Supports are viewable on a weekly chart, not this daily. But they are there are they are clear. Technically and backing out everything we think we know about the Fed and its struggle against inflation, silver continues to be a candidate to have already bottomed. That low may have finally purged the evil spirits injected into the silver market during the pathetic but damaging #silversqueeze promotion.

The Silver/Gold ratio (SGR) has remained very firm through all of this market angst. It’s evil twin, the Gold/Silver ratio has obviously dropped hard as well and is currently a negative divergence to the US dollar while the SGR is a positive one for the precious metals (silver usually leads) and potentially commodities/inflation trades and yup, stock markets as well.

But its bullish implication may also be limited to the precious metals, which unlike commodities and stocks, have been in correction for well over 2 years now. Frankly, my SPY short position is my largest one and I am not too concerned about it yet. In the best case for gold bugs, this would be a discrete signal within the precious metals complex.

Bottom Line

If gold loses support and follows through on its downside, all bets are off in the very short-term. Even if silver maintains its relative strength to gold, a tank job in gold could bring silver to a test of its recent lows. But as it stands now, less than a week from the most hyped FOMC event yet, silver is trying to signal something positive, as in ‘bottom in’.

If this continues and the Gold/Silver ratio breaks down the US dollar will find itself alone way up there staring at a major contrary (bearish) play. Uncle Buck: “Ruh roh!”

A breakdown in USD could signal a larger global rally, including commodities. But without making too big a deal about it, it is the precious metals that are of most interest and a signal by silver vs. gold would be meaningful for the sector first, and maybe the wider macro second.

I still plan to try to exercise some patience, but it’s interesting folks.