Assessing the short-term outlook for the precious metals and the miners

October 4, 2016 03:32 PM

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Precious metals expert Michael Ballanger assesses the gold-silver ratio and its ramifications for the market. I want to go on the record and state categorically that, in my opinion, technical analysis is of limited value when trying to predict the short-term movements of precious metals.

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance. With more than 30 years of experience as a junior mining and exploration specialist, as well as a solid background in corporate finance, Ballanger's adherence to the concept of "Hard Assets" allows him to focus the practice on selecting opportunities in the global resource sector with emphasis on the precious metals exploration and development sector.

Gold-Silver Ratio Chart

However, there are millions of traders and investors out there who believe that it does work despite interventions, manipulations, and the ability of the bullion banks to fabricate a surrogate for actual physical gold by way of paper futures. In light of that, the short-term technical set-ups for gold and silver and the miners are all different in that after Friday's month-end bombardment, which originated in the London options market, that formidable uptrend line that began in December 2015 has finally been vanquished. The ramifications could be nasty next week because for the second year in a row, the seasonally strong month of September failed to shine (at least for gold). The big question is now whether or not we get a follow-through to the 200-dma at $1,252 before resuming the uptrend or will that large Commercial short position serve as a demand catalyst and limit any meaningful downside?

Gold price

Unlike gold, the silver market is in great shape technically in that it has actually held its uptrend line dating back to the December lows and could actually pull back to $18.20 to 18.25 and still be intact bullishly. The fact that silver is outperforming gold is a bullish confirmation in my world.

Silver Price

The Gold-to-Silver-Ratio (GTSR) continues in its downtrend, which I believe is explained by the enormous Commercial short position in silver, where one of two things are occurring. Either the big base metal miners have mobilized their byproduct silver reserves by way of the hedges or the bullion banks are playing games. Perhaps it is a combination of both as it wouldn't be a terribly brave trade for a desk trader to play "pile on" to a big base metal miner's orders.

Or maybe, just maybe, the physical demand for silver is finally pulling away from the shenanigans that we have been dealing with for what seems like forever. Any way you cut it, silver is outperforming gold and that usually means that both metals are headed higher.

Gold-Silver Ratio Chart

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About the Author

Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a Bachelor of Science in finance and a Bachelor of Art in marketing before completing post-graduate work at the Wharton School of Finance.