Precious Metals: All In, or All Aboard??

The Gold ETF is a more volatile version of the underlying. Some doubt it’s efficacy. Should you hold it long term you need to accept the rate of decay is substantial. There is a day out there somewhere where it gets readjusted to match the price of gold, and the owners have fewer shares but at least the prices match.

One the rally was walked back, with a high pole warning. That usually signifies that the really bullish outcome has been taken off the table but no real bear market is in sight. A drop further would trigger a sell signal, which is already evident in the underlying.(purple arrow)

Good news here is that the back and fill removed the tentative label off the column of O’s which determines the lowest bearish objective from the first column of O’s at the high. The column of O’s which started at 2060 was tentative until those four X’s were put on the chart. That makes the 1720 objective a firm number. Otherwise in a tentative column of O’s the objective is potentially expanding with every O added to the column.

Now the gauntlet is being thrown down here, support at the bullish trend line, in blue and further down is the bearish objective, which is very neatly placed just above a longer term extended triple bottom, the green line. The fact we retraced everything we gained on the way to 2070 pretty much erases the possibility that prices are going back there shortly. Now it’s how low can we go? Remember the GLD will become a tentative column of O’s at 174 and has the potential to setup an even deeper drop. The GLD never reflected the spurious Christmas Tree rally that physical gold embraced. Chalk that up the nature of a fear driven rally. GLD is also much closer to the support line. Which determines price, the GLD, through retail buyers, or the physical market?? Sometimes the tail wags the dog. Should enough people short the GLD for instance.

Should GLD put on a sell signal while at the trend line that is akin to slamming on your brakes in the Holland Tunnel at rush hour. Let’s bring in some other sources.

I see the three taps on the lower line and the 200dma moving closer and I say, Silver may be about to take the lead. I already did the 1997 chart of the fast drop (six months) in the ratio. The high at around 1.20 is back in April of 2020 so this could be a continuation signal in a declining price trend.

Here’s another look. So far this has a recent pattern of nudging the trend lines, breakouts which are quickly retraced. So if the ratio goes back to 80, waiting to confirm, but if it fails this time, that says something. If the descending trend line holds at 785, that could set up the rapid drop situation which would make Silver the PM to hold. In the event that the PM’s turn lower together, Silver should give up less. Small comfort I know.

One thing about this ratio, there are no rallies. There was a sharp (oversold) adjustment made in 2016 and the bounce post Covid has been good, against a backdrop of lower gold prices since 2011. In other words the gold miners sort of backed into this. I suspect the gold miners ETF, GDX will also experience a high pole warning. So far that divergence remains open.

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