Having exited the minerals sector in the doldrums at the beginning of last summer 2011, I have not paid much attention to the longer-term price trends of gold and silver; I have been merely noting the daily upward and downward volatility.
Recently in 2012, I took more interest in the market as the general markets seem to be reviving. I noted that gold miners were lagging the price of gold and surmised that this was exit time. Even when trying to fathom the future path of gold, the way forward appeared to be dim.
Today, to my surprise when I took a longer-term view, I discovered a revelation, which has not been noted in the public media to my knowledge. The price of silver appears to be leading the price of gold downward.
(Click charts to expand)
The chart above shows the silver SLV ETF as a proxy for the price of silver. I use the proxy mainly to get the display on the volumes traded. SLV peaked in May of 2011, and has been in a declining pattern of lower highs and lower lows since.
The gold GLD ETF is used as a proxy for the price of gold in the chart above. This chart clearly shows the peak for GLD was in August, September of 2011, and a declining pattern of lower highs and lower lows since then as well. The time frames for the GLD decline followed upon the decline of the SLV by about three to four months.
Silver Superimposed on Gold
The chart above shows the SLV ETF superimposed upon the GLD ETF, since the beginning of 2011. Silver being the more volatile of the two metals has higher peaks and deeper valleys. It is quite apparent that silver peaked in April 2011, and has been gyrating downward since. It is also quite apparent that gold has peaked in September 2011 and is in a bottoming process downward as well.
Definitely, it appears that the silver price action was leading the gold price action and was also leading by about three months.
When and where the bottoms for these two precious metals are will be played out in the months ahead. My feeling is that there are better opportunities elsewhere in the market for now, outside of the precious metals space.
Other Points of View
In order to balance the viewpoint, it is always helpful to examine what other analysts are saying.
Gary Tanashian, a respected analyst that I monitor, is saying in his cryptic manner hold onto your gold stocks as the sector will rebound.
Przemyslaw Radomski is saying in his double-talk approach that "a sharp rally is not a likely probability and that further consolidation is quite possible"
Jordan Roy-Byrne, a technical trader comments that "The gold stocks will likely spend the next few months forming a base which follows the long-term bottom in December. Meanwhile, the broad equity market is unlikely to move much higher."
As usual when working in the markets, there are as many points of view as there are participants in the market; that plethora of opinions is what makes a market work.
My positioning is that, due to the emerging downward trend action in the precious metals, I have taken my sector bets off the table and am awaiting a good value situation in the months forthcoming in order to make another decision to re-enter. I will be keeping a keen eye upon the silver price, as this metal appears to be the leader, and will watch for a rebound upward.
Meanwhile, I am exploring in the oil and gas sector, where there appears to be an upward price trend in place; remember the trend is your friend.
Additional disclosure: Equities mentioned: SLV, GLD
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