It’s been a very eventful week in the precious metals sector, so where do we start? For the first time in a long time, our “story” begins with prices.
Just one week ago, I noted in this column that all the pieces were in place for a new, big rally in the sector: extremely supportive fundamentals, a (very) long sideways period of price-consolidation (where gold and silver became more and more undervalued), and ever more-alarming news to frighten people toward the security of gold and silver. Along with that, we are just about to enter what is traditionally “the strong season” for gold and silver. All we were waiting for was for prices to reflect those factors.
Therefore it is of great significance to see decisive price-action in support of the fundamentals. In just one week, silver has chewed through several key, long-term resistance barriers – in rising all the way from a little over $28/oz up toward $31, a near-10% weekly move. Equally significant, we see gold now clearly following silver higher as opposed to leading it.
Why is this of significance? Simple numbers. The silver sector is much smaller than gold by dollar-value. So when the sector heats-up, it takes much less dollars flowing into the silver sector to drive prices up higher. Thus we expect to see silver leading the way every time the bulls start to get excited – because the bankers are simply powerless to hold back the upward momentum generated.
So gold’s move from roughly $1610 to $1670 was less than half as large as silver’s weekly move (in percentage terms). However it was still a very important performance – since gold also moved above a key “technical barrier” (as I highlighted in an earlier post). But this brings us to the obvious question: what’s next?
Regular readers will recall that I noted earlier this week that there were two price patterns which would concern me – in that (from my perspective) they would force an immediate “counterattack” by the bullion banks. Those patterns were either a market recording several large price-gains in rapid succession; or, a more slowly developing “exponential” pattern – where the daily gains get larger and larger.
Obviously one week is a very short time-horizon to appraise such price action. However, what we have seen up until now is a strong but orderly rise in prices. In other words, there is nothing in the price action this week to trigger immediate “alarm bells” within the banking cabal. As a result, and given the positive “buzz” about precious metals even in the mainstream media, all expectations are for the rally to continue next week. We need to continue to monitor the pattern in these prices, however, for clues to how the banking cabal will respond.
If price-action should start escalating next week, then we could easily see the CME Group step into the futures market with some increase in margin-requirements – generally their first step in attempting to put the brakes on any rally.