The metals continue ripping higher. Party on Garth.
But an important consideration for investors in gold and silver miners is the sector’s internals. Of course the situation is overbought and momentum is relentless. That is a risk consideration. But below we’ll look at the internals from the standpoint of leadership.
The fundamentals are a more important consideration on the bigger picture. One look at the charts of Gold/Oil, Silver/Oil and both metals vs. stocks tells us the sector and macro funda are ship shape.
All that said, let’s look at the leadership internals to update that situation.
- GDX (HUI)/Gold (daily chart) is ship shape.
- SIL/Silver (daily) is not good, but with silver going parabolic that is understandable.
- The weekly chart of SIL/GDX shows a Diamond consolidation. These patterns can be bullish or bearish. SIL/GDX’s breakout from the Diamond implies bullish.
Bottom Line
The internals of the precious metals sector are good. While I still think there are near-term risks involved due to general market momentum and FOMO, this is important. In unison with the macro fundamentals the picture really could not be better.
If silver’s leadership continues into the new year (potentially subject to an interim reaction) the signal would be to expand out into the wider commodity areas, with a (personal) focus on the specialty/critical stuff (REE, Li, Cu, Ni, etc.). But if the condition persists, I am going to respect the risk involved with the Gold/Silver ratio’s current downside extreme (subject to interim snap-back) until that pressure is released.
Big picture wise and subject to that interim potential, the precious metals appear to be leading us to an eventual “inflation trade” in 2026. Meanwhile, the internals advise that the Santa party is still on in the short-term.
Short-term: Risk in silver relative to gold. Simple technical and momentum risk/reward analysis.
Longer-term: Silver may be leading a wider “inflation trade”.
