Silver's Bullish Momentum No Longer Correlates To Gold

Whilst it is generally true to say that gold and silver tend to follow one another in terms of market trends and price action, this is not always the case. In trading, correlations between markets and instruments do fall out of step from time to time, and this is certainly the case with gold and silver at present on the daily chart.

Whilst not an extreme example perhaps, nevertheless, silver futures have picked up some bullish momentum in the last few days, a sentiment which has been lacking for gold, which remains waterlogged in sideways congestion for the time being. The two metals are of course very different, with gold remaining the ultimate safe haven hard asset, and whilst silver is still considered by many to be a ‘precious metal’, and bought and sold accordingly, it is in fact classified as an industrial metal, and therefore, like copper, will often reflect broad economic sentiment, rather than risk.

Despite this, the gold/silver ratio is one of the most closely watched as a point to whether one or other is oversold or overbought. So what do we see on the daily silver futures chart at present?

Well, the first point to note is that following the sharp sell-off in late October, with the magenta widebar, and the isolated pivot low posted on the subsequent bar, the market has recovered, with the trend dots moving from red to white and subsequently to green in the last few days.

This is very different from gold, which has yet to make this transition. In addition, the isolated pivot low posted on Friday of last week, has helped to push the market higher once again, beyond the price resistance in the $32.40 per ounce region. This has now created a strong platform of support and a springboard for the trend to develop further.

This reversal in sentiment from bearish to bullish was clearly signaled with the daily volume bars, with the buyers returning in force in early November, and giving an advance signal of a change in trend. This sentiment was also clearly reflected on the three day chart, with the volume here also showing a bullish bias, with consistent buying over the same timeframe. However, we have yet to see the three day trend transition in any way, either to white or to green, but this may only be a question of time, given the aggressive volume set-up signal which was delivered this past week.

Finally, the heatmap has also recently transitioned to reflect the bullish sentiment, suggesting that in the short term we can expect to see silver futures push higher. For the trend to develop further we need to see a transition in the three day trend.

From a technical perspective, we are now running into price resistance in the $33.70 per ounce region, which extends through to the series of isolated pivots highs in the $35 per ounce area, but if the current bullish momentum continues, then we should see this level breached in the short term. Longer term we could see a re-test of the isolated pivot high in the $37.75 area, last seen in March this year.