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Silver Looks Way Better Than Gold Right Now

John Rubino profile picture
John Rubino

Normally, the action in the gold and silver futures markets tends to be pretty similar, since the same general forces affect both precious metals. When inflation or some other source of anxiety is ascendant, both metals rise, and vice versa.

But lately - perhaps in a sign of how confused the world is becoming - gold and silver traders have diverged. Taking gold first, the speculators - who tend to be wrong at major inflection points - remain extremely bullish. Commercial traders, meanwhile - who tend to be right when speculators are wrong - are extremely bearish, with short positions more than double their longs. Historically, that's been a setup for a big drop in gold's price.

Viewed as a chart with the gray bars representing speculators and red bars the commercials, and where divergence is bearish and convergence bullish, the result is pretty ugly.

But now check out silver. Where gold futures speculators' long positions are three times their short bets, silver spculators are actually more short than long. In other words, the people who are usually wrong are bearish. The commercials, meanwhile, are almost in balance, which is usually bullish for silver's subsequent action.

Shown graphically, speculators and commercials are meeting the middle at zero, something that's both very rare and very positive.

What does this mean? One possible explanation is that silver has gotten too cheap relative to gold and needs to be revalued. That could happen in several ways, with both metals rising but silver rising more, or both falling but silver falling less. Or with gold dropping while silver rises, as improbable as that seems.

As the chart below illustrates, gold has recently been rising relative to silver (or silver has been falling relative to gold), with the gold/silver ratio now close to 80, meaning that it takes 80

This article was written by

John Rubino profile picture
John Rubino manages the financial website DollarCollapse.com. He is the co-author, with GoldMoney’s James Turk, of The Money Bubble (DollarCollapse Press, 2014) and The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a money market trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He currently writes for CFA Magazine.

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Comments (6)

ronaldcbarr profile picture
Do central banks hold silver as monetary reserves? If yea, are they reported in the same way as gold? Don't honestly know but if they are not, then this is the reason long silver-short gold is not a good strategy IMO.
deryb profile picture
05 Mar. 2018
Good idea, I decided to jump in with a short GLD + long SLV., with a -1 / +2 ratio. It seemed like the sweet spot in terms of risk / reward. Your case seems to make sense, and I believe some other events might precipitate a rush back to more traditional safe havens. Either political, economical, or the bitcoin/crypto currrencies crowd will get shaken down and start looking for more tangible vehicles.
GSR about 80-1 is historically a good time to get into silver.
John, I suggest you start tracking the disaggregated futures report that breaks out the commercial category into producer / merchants and swap dealers (banksters). Producers / merchants are very slow to change their positions (glacial pace). Not so the banksters.

Last week's report was amazing.
The swap dealers were net long 22,042 silver contracts as of last Tuesday, holding 1.82 longs for each short.
This is the second highest in the history of the series, bested only by the report of June 25th 2013 (23,338 and a ratio of 2.45).
Note that the swap dealers are net short 90% of the time.
When they turn bullish, it is because they expect a relatively quick move (i.e. less than 10 weeks) of at least 10% to the upside

Fund managers (price chasers) were net short 16,435 contracts, also the second highest for the series.
They held less than 0.7 longs for each short contract.

Looks like silver just completed a double bottom.
This week's action may confirm.
Thursday's intra-day low was $16.16 versus the $16.13 low of Feb 9th.
However the daily closes last week were considerably higher than during the first stab into this area.
Price momentum is also much improved.

Sunday night action is very positive, let's see if anyone tries to dampen the excitement.
It's been dead money for the past 5 years..... Still holding on the assumption that precious metals will rise given explosion in public debt, the impending Trump meltdown and the increasing volatility associated with it.......
Dead money?? Silver rallied from Dec 15 to mid 2016 by about 50 percent. Its now given up about half the gain as industrial demand has gone up. I am not saying its by any means a guarantee but its equally wrong to say its been dead money in the recent past. Any investment is dead money if you buy at the trading range high, watch it go down to the trading low and then wait for it to recover.
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