Gold and Silver
See it big, and keep it simple.
Wilferd A. Peterson
From high to Low Silver has dropped over 24%. From high to
low Gold has so far shed only roughly 12%. Silver also did
not take out its 2008 highs when Gold went on to put in a
series of new all time highs. This is another massive intra
market negative divergence signal and yet another reason to
suggest that Gold could correct/consolidate for several
months. On a positive note gold has held up remarkably well
in the face of a very strong rally from the dollar. If it
continues to hold up like this, then when the dollar rally
finally fizzles out, one can expect gold to literally
The breakdown in silver could be an early warning signal of
what lies in store for Gold in the short term time frames.
Taking the longer term perspective, this rapid move down in
silver indicates that when the next buy signal is generated
in the precious metal's sector, that Silver will most likely
be the top performer. Remember all dogs have their day in
the sun. Palladium the leading dog clearly illustrated this
point as it took the number one spot in the precious metal's
sector in terms of performance for the past 12 months; we
were strongly pounding the table on this underdog from late
2008 to early 2009.
The above chart clearly illustrates Silver (poor manís Gold)
inability to trade to new highs in Dec and Jan of this year,
while Gold surged to put in a series of all time new highs.
This is a double negative for not only has silver not even
come close to taking out its all time high, but it could not
even test or take out the highs it put back in March 2008.
Silver moves much faster on a percentage basis than Gold
does so this action indicates that something is out of sync
in the Gold markets at least in the short to intermediate
Silver has now become the dog of the precious metal pack and
according to the dog theory it will have its day in the
sun.. When the time is right we will issue a strong buy for
this metal. In the short to intermediate time frames though,
it would be wise to wait before deploying any new money as
Silver is indicating that all is not well in this sector.
Note that Gold has issued multiple intra market negative
divergence signals, if it had issued one only then we would
not pay too much attention to this development. Gold,
however, has flashed several very strong intra market
negative divergence signals, the strongest one was flashed
by the dollar; the dollar refused to trade to new lows when
Gold went to put in a series of new highs. Instead the
dollar was actually trading roughly 4% higher from its
previous low, when Gold put in a new all time high.
In the short to intermediate time frames, the precious
metal's sector is still expected to correct/consolidate.
Gold, however has held up remarkably well in the face of a
strong dollar. Given the strength of the dollar one would
have expected Gold to have pulled back a lot more than it
has done so far. If this pattern in Gold persists then it
very strongly indicates that once this rally in the dollar
comes to end, Gold is going to literally explode upwards. On
a percentage basis though silver is expected to perform a
lot better than Gold in the next leg up.
SECís curbs on short selling a waste of time
The rule puts in a so-called circuit breaker for stock
prices, restricting short-selling of a stock that has
dropped 10 percent or more for the rest of a trading session
and the next one. The new curbs take effect in about 60 days
but stock exchanges have six months after that to implement
The above rule will only serve to delay the inevitable and
could actually worsen the situation. For example, letís say
a former high flyer disappoints the street with its earnings
report. Normally, the stock is bid up in anticipation of
blow out earnings, but now the earnings come in lower than
expected, so say the stock drops 20% in one day, but short
sellers are now cut out of the game. Like a dam, the
pressure will build up and a day later when the short
sellers can jump in, it might cause the stock to drop more
than 10% and so forth. This effect could go for a longer
period of time than if normal market forces were allowed to
play out. When one is forbidden from doing something the
desire to the opposite increases twice fold; the more one is
prevented from doing something the more one wants to do it.
Thus this rule is just a silly piece of legislation that
will not really achieve much in the long run. In the short
run, it might provide the illusion that it has the effect of
stabilizing the markets.
I keep the telephone of my mind open to peace, harmony,
health, love, and abundance. Then, whenever doubt, anxiety,
or fear try to call me, they will keep getting a busy signal
and soon they'll forget my number.
charts were provided courtesy of
Palladium and Another Potentially Strong Buy Signal on the
Palladium: The Silent Champion
The Dollar, Euro and Gold