Gold and silver futures finished on Friday at their lowest levels in six weeks.

At the same time, popular ETFs investing in mining stocks closed higher on the week. That’s prompting some analysts to predict that the longer-term pattern of miners outperforming metals might be returning.

“There seems to be a divergence taking place in which stocks have been overly punished and are poised to grind through summer with relative outperformance compared to metals,” said independent analyst Jordan Roy-Byrne in an interview.

Gold for August delivery finished down 1.3% at $1,482.60 an ounce on the Comex, the lowest ending price for a most-active contract since May 17. The contract fell 1.2% on the week.

The SPDR Gold ETF (GLD) finished off by 0.7% on Friday.

Silver for September delivery also fell to its lowest level since mid-May on Friday, dropping 3.2% to $33.705 an ounce. The iShares Silver ETF (SLV) fell 2.5%. The fund’s shares wound up with a 1.1% loss for the week.

The Market Vectors Gold Miners ETF (GDX) slumped 1.6% to $53.74 a share while the  Global X Silver Miners ETF (SIL) also fell 1.6% on the day.

GDX finished up 2.2% for the week and SIL closed ahead by 2.7%.

Optimism over Greece and a surprise rise in manufacturing took much of the attraction away from gold and silver as safe-haven trades, say analysts.

“Gold and silver were on the slide today as safe-haven investments were withdrawn,” traders at Sucden Financial wrote in a note.

Barclays Capital wrote that the yellow metal may slide as low as $1,460 to $1,470 before finding a base.

While agreeing that ETFs that buy metals and track spot prices might face tougher sledding in the short-term, Roy-Byrne says mining stocks are showing increasing relative strength.

Going forward, Roy-Byrne believes miners have confirmed  a bottom and are consolidating. For GDX, he see support at $52 a share with upper resistance at $55 a share.

“It’s a tight range, but we’re in the summer and there has been a lot of liquidation of precious metals holdings in the past six months,” said Roy-Byrne.  ”There’s not a lot of downside left over the next several months.”

Market professionals and experienced investors consider it to be common knowledge that silver has more real-world uses than its precious metal sister gold. Silver is used in coins, photography, batteries, bearings, electronics, and mirrors. Silver also aids in numerous medical applications and even contributes to helping capture and use solar energy. The Silver Institute describes “silver uses” as follows:

Demand for silver is built on three main pillars: industrial and decorative uses, photography, and jewelry & silverware. Together, these three categories represent more than 95 percent of annual silver consumption. In 2007, 455.5 million ounces of silver were used for industrial applications, while over 128 million ounces of silver were committed to the photographic sector, 163.4 million ounces were consumed in the jewelry market, and 58.8 million ounces were used in the silverware market.

Why is this indispensable metal in such demand? The reasons are simple. Silver has a number of unique properties including its strength, malleability and ductility, its electrical and thermal conductivity, its sensitivity to and high reflectance of light and the ability to endure extreme temperature ranges. Silver’s unique properties restrict its substitution in most applications.

While gold is used in numerous consumer products, such as in computers and electronics, according to geology.com about 78% of the gold consumed each year is used in the manufacture of jewelry. Investors also respect the use of gold as an alternative to paper currencies and as a safe haven asset.

The point is silver tends to be in greater demand relative to gold during economic expansions and bull markets. Gold tends to be in greater demand when concerns rise about economic downturns or geopolitical events. These basic investment tenants describe how stock investors can benefit from monitoring the gold/silver ratio, which is simply a study of the demand for gold relative to the demand for silver. Before looking at how the gold/silver ratio can help us better understand the threat of an ongoing correction in stocks, we will review recent historical cases that illustrate swings in relative demand for these precious metals.

According to a February 28 story in The Daily Reckoning:

The US Mint sold over 6.4 million silver Eagles in January, more than any other month since the coin’s introduction in 1986. China’s net imports of silver quadrupled in 2010, to 122.6 million ounces, roughly 13.7% of global production. Meanwhile, mine production can’t meet worldwide demand; the only way demand gets fulfilled is from scrap supply.

On March 10 we showed how defensive assets, such as the VIX and utilities, were gaining strength relative to the stock market. Just as the changes in relative strength can help us better understand a possible shift in market sentiment, the gold/silver ratio could be termed the “defensive/expansion ratio”. When investors are playing defense, the ratio rises since gold is in favor relative to silver. When investors are less concerned with Armageddon-like events and more focused on better economic times, the ratio falls since silver is in favor relative to gold.

In terms of where the economy sits right now, the Fed opened its March 15 statement with an upbeat tone:

Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business investment in equipment and software continue to expand.

On March 15 we looked at the performance of numerous asset classes and market sectors under two scenarios – during the April-August 2010 ‘flash crash’ correction and during the subsequent QE2-induced rally off the August 2010 lows. Today we dig a little deeper into the data to help us better understand the risk of another prolonged correction occurring in the coming months. The table below shows how investments related to precious metals performed during a defensive/corrective period (left) and during a period where economic expansion/inflation-friendly assets were in favor (right). Investments related to precious metals are highlighted in green. Gold is represented by the gold ETF (GLD). Silver is represented by the silver ETF (SLV).

Just as we would have guessed, gold outperformed silver during the ‘flash crash’ correction by a margin of almost 2-to-1. Similarly, when market participants became less fearful and began to focus on economic growth and QE2, silver significantly outperformed gold in late 2010 and year-to-date.
The question of the day is:

What are silver and gold telling us now and how does it potentially impact the stock market?

The chart below shows a bullish turn in the gold/silver ratio that was “confirmed” by a higher high on April 27, 2010. Think of April 27 as a bullish turn in the defensive/expansion ratio, meaning defensive-minded investors overtook bullish investors in terms of their conviction.

As shown below, the stock market did not perform well after the bullish turn in the gold/silver ratio. Compare April 27 in the chart above to April 27 in the chart below.

The good news is the present day gold/silver ratio is not telling us to swap our silver and stocks for gold; at least not yet. The gold/silver ratio remains in a downtrend (pink line), which means the conviction of gold buyers has not yet surpassed the conviction of silver buyers. Said another way, the conviction of defensive-minded investors has not yet surpassed the conviction of economic bulls.

Three things need to happen from a technical perspective for gold to gain the upper hand on silver. The first one, breaking above the pink trendline, has not even occurred yet. It may indeed happen in short order, but for now the gold/silver ratio is terming the current state of the stock market as a “pullback”. It may indeed upgrade the classification to a “correction”, but relative to the events of 2010 we have not even met that standard yet.

In terms of our investment strategy, this analysis does not alleviate our concerns about Japan and the fast-approaching completion date for QE2. As we stated yesterday, this remains a ‘prove it to me’ market, meaning we have been and are open to raising more cash using the incremental approach. On Wednesday, we cut back further on gold stocks (GDX), Australia (EWA), Germany (EWG), and inverse-Treasury bonds (TBT). The current state of the gold/silver ratio does leave us open to better than expected outcomes over the next few weeks. Our short-term bull/bear checklist, based on the S&P 500, remains in the “be patient” range.

The CCM 80-20 Correction Index is telling us to remain defensive, but to also keep an open mind relative to where stocks may be in three-to-six months. In the tables below, high numbers indicate more favorable conditions in terms of historical risk vs. reward.

The figures in the tables are as of Wednesday’s market close. Notice the current risk reward numbers (top of table below in yellow and green) and are attractive relative to the market’s average and median profiles under various conditions.

The market’s current profile, from a positive perspective, means little unless we see evidence starting to accumulate which points to a probable change in the short-term trend. Said another way, until we see evidence to the contrary, we need to maintain a defensive bias. Once the evidence begins to shift, we have to look at the market objectively to make the best allocation decisions possible.

Source:Time to Trade Stocks and Silver for Gold?

Silver rules! Gold is the victor, but Silver takes the spoils! The little sister shines! Central banks own no silver, nor do governments anymore. Industry requires and consumes silver, but not gold. Mint coin sales have exploded to record levels, and now struggle to continue amidst grotesque shortages. So on a supply basis and on a demand basis, silver is the dominant metal. In the last several months, Silver has shown its power and exerted its strong dominance. It has led the precious metals move, an explosive one. Gold has confirmed. Excuse the outline format, but the message is clear, offered without the burden of details. In this case, at this time, the important message is the firestorm of positive factors leading to a silver price explosion. The Jackass is on a brief vacation in Central America where the sun never stops shining. Apologies in last weekly article where mention was made of a negative real rate of inflation. The error was blatant in a slip of fingers. Given the price inflation of 8% in the USEconomy and near 0% rate of short-term interest, the inflation adjusted real rate of interest is negative. It is in the minus 7% to minus 9% range. That is a primary jet fuel accelerant for the gold bull market, a factor overlooked by the clueless cast of economist hacks!!

SILVER ON THE VERGE OF EXPLOSIVE MOVE

- prepare for an explosive upward price move toward $40 this spring/summer

- a bullish silver hammer was shown last week, with open & close at the weekly high

- year end price target is $50 per oz should be easy to achieve

- a flag pennant pause pattern has been completed at the 28-31 range

- usually it signals a half-way mark, so get ready for a move to 40 in next runup

- gains in silver have tripled the gains of gold, as Jackass forecasted late last summer

- do not be surprised if in 2 to 3 years, the silver price exceeds $100 per oz

- latest noontime reading was 34.90 per oz for silver, in breakout

GOLD FINALLY CONFIRMS BREAKOUT

- it was bound to happen, and finally it did, confirming the silver breakout

- a rectangular pattern was evident throughout the consolidation period

- gold has shown a very different price pattern behavior consistently

- the entire global monetary system is in ultra slow motion breakdown mode

- latest noontime reading was 1440 per oz for gold, in breakout

GLOBAL SILVER SHORTAGES

- strong industrial silver demand (not true of gold)

- absent depleted USGovt stockpile from 1905 created by Teddy Roosevelt

- fully 6 billion ounces of silver in stockpile has been exhausted for five years

- numerous government mints around the world have announced no silver supply

- evident in the futures contracts, in backwardation of varying degree

- expect arbitrage in full force to continue to make backward price extreme

HUGE QE2 EFFECT ON COMMODITIES

- monetary metals, industrial metals, energy, foodstuffs all rising fast in price

- silver being accepted as monetary reserve, even as asset reserve

- Chinese Govt announced plans to diversify reserves into silver

- India is the first nation to begin a silver monetization plan

- early stage of hyper price inflation in the global economic price structure

- inflation adjusted real rate of interest is minus 7%, a primary gold market fuel

- denials by USFed Chairman Bernanke is its confirmation !!!

- Ben has a nearly perfect track record of wrong analysis and conclusions

DEPLETION OF COMEX VAULTS

- demands for delivery have been heavy since September

- secret supply bailouts come from BIS and even the Holy See

- some sort of March delivery climax event might be in progress

- China has targeted the COMEX for delivery raids

- demand staved off by COMEX cash delivery with 25% bribe (contract fraud)

- metals markets have no silver !!

CHINESE PLOT TO CORNER SILVER MARKET

- China is angry at a broken secret treaty over Favored Nation Status grant

- the USGovt sold the leased metal and cannot return it to China

- China honored its side of the agreement by purchasing USTreasury Bonds

- China is angry over the unilateral QE programs on US$ devaluation

- the devaluation of the USDollar was done unilaterally without agreement

- China is angry over charges of currency manipulation by the USGovt

- the grand currency manipulator in gross violation is the USGovt & USFed

- China senses an exposed jugular vein, and is using Sun Tzu war tactics

GIGANTIC USMINT SILVER DEMAND

- January coin sales were more than 2x the demand in previous months

- mint coin sales are setting records not seen in 20 years

- the USMint is purchasing silver from the open market

SPROTT FUND CHALLENGE TO SOURCE SILVER

- the fund required over three months to secure the entire supply of bullion

- its manager reports of extremely tight silver market, no loose supply

- James Turk echoes the shortage claim, from his GoldMoney vantage point

MINING FIRMS BYPASS COMEX

- the mining firms are not given a fair price by the metals exchanges

- they are selling to the more honest investment funds, as metal source

- the funds might strangle the official corrupted COMEX on supply cutoff

SLV SUPPLYING  COMEX TO MEET DEMAND

- SLV stock shares used to offset naked shorts of futures contracts

- back door to fraud written in their fund prospectus, in careful language

- 129 million oz originally came from Warren Buffett, the great deception

- prepare for a gigantic lawsuit from defrauded investors in late 2011 or 2012

- penalty in negative 2% SLV price premium, which is heading to minus 25%

- in time, the SLV fund will own zero metal

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

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Silver market expert:  “But but but… SUPPLY/DEMAND I tell you!”
Momo in fear of losing profits, or being tagged with a big fat bag full of losses:  “Screw you, I’m outta here!”

By Jack Chan at www.simplyprofits.org
12/04/2010

GLD – buy signal this week.
SLV – on buy signal.
GDX – buy signal this week.
XGD.TO – buy signal this week.

Summary
Long term – on major buy signal.
Short term – on buy signals.
We continue to hold our core positions with a hedge in place to lock in profits. We will lift that hedge and add to positions upon new set ups in the ETFs.

Disclosure
We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.
We also provide coverage to the major indexes and oil sector.
End of update

By Jack Chan at www.simplyprofits.org
11/27/2010

GLD – on sell signal.
SLV – on buy signal.
GDX – on sell signal.
XGD.TO – on sell signal.

Summary
Long term – on major buy signal.
Short term – on mixed signals.
We continue to hold our core positions with a hedge in place to lock in profits. We will lift that hedge upon evidence that the correction has completed.

Disclosure
We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.
We also provide coverage to the major indexes and oil sector.
End of update

In latter August I penned a forecast for my subscribers to TMTF on Silver, and below is a brief excerpt from August 31st:

I believe Silver is about to stage a pretty large advance based loosely on the Elliott Wave pattern I see unfolding after a 9 odd month consolidation. (Obviously, there are also fundamental fiat currency/debt events worldwide that give it the underlying bull chart pattern). Since the average person can’t run out and buy an ounce of Gold for $1,240 tomorrow, as the unfolding of the fiat crises continues to enter the public psyche, you will see a strong populace movement into buying silver, silver coins, etc. To wit, many silver stocks are moving up strongly of late, signally an imminent breakout of this precious and industrial metal.

The triangle pattern has taken nearly 9 months so far, for starters before a broad pullback.

I bring this up now, some 11 weeks later because Silver did in fact rally up from around $19 per ounce to $29 per ounce, and this was forecast well in advance using my crowd behavioral methodology and pattern recognition. The explosion in price I predicted happened much faster than even I expected, but does show the power of the crowds as they take hold of a new trend or a perceived trend and run with it. Part of the theory to be long silver also had to do with it being “poor man’s Gold”, which I indicated in my forecast. This is also crowd psychology in it’s finest form. People perceive Gold to be “too expensive”, but they can buy silver for only $29 an ounce. To wit, most investors do not really understand the difference between a stock that has 2 billion shares outstanding and one that has 20 million shares outstanding, they only care about price. They often think if a stock is $2 it’s “cheaper” than the stock at $100, little do they realize that a $2 stock that goes to $1 is a 50% loss, but they perceive that as a small risk due to the price. With Silver, you have the mom and pops running out and buying it because it’s “cheaper” than Gold.

Now that Silver has run to $29, my target, and then dropped back, what should expect next? Well, we are in that “broad pullback” I mentioned back in late August that would occur once $29 was hit. Technically speaking and looking at typical crowd behavior, I am expecting consolidation to continue for awhile under $29 per ounce. I call this recent pattern an A B C rally, and once the C wave ends at $29 in this case, forecasting the next move is extremely difficult and can be exasperating. The C wave ran from $19 to $29, and at the tops of those moves everyone is bullish and breathless. Figuring out how the crowd behaves after those patterns is similar to pulling a rabbit out of a hat. With that said, I would expect a 38-50% retracement of the $10 move to about $24 an ounce worst case, and then we should re-attack the $29 highs and likely move into the $32-$34 per ounce range within the next 60 days or so. Silver will continue to out-perform Gold for the foreseeable future as well if I’m right. It appears by my chart below that we already had our initial corrective low, and now we will consolidate and break out.

Consider subscribing to our free reports today by going to www.MarketTrendForecast.com, and there you can take advantage of a one time coupon as well. I cover the SP 500, Gold, and Silver on a regular basis.

The past few months it seems the gold and silver play has been getting a little crowed with everyone wanting to own gold. While I am a firm believer that these precious metals are a great hedge/investment long term, I can’t help but notice the price action and volume for both metals which looks to me like they are getting exhausted.

Silver – Daily Chart
The silver chart below shows an extremely high volume reversal candle in early November which typically leads to lower prices and some times a major change in the trend. That being said silver remains in an uptrend with the possibility of a bullish pennant forming. On the other hand there is a possible head and shoulders pattern forming. I will be looking for light volume sideways chop keeping a close eye for a possible neckline breakdown or a momentum thrust to the upside for a possible trade.

Gold – Daily Chart
Gold is forming a bullish and bearish pattern also giving us a mixed signal. I am currently neutral on gold and not really looking to take part until we get some type of clear price action.

US Dollar – 60 Minute Chart
The dollar has shown some strength recently. The US dollar play has been to take the short side, and a couple weeks ago we saw the dollar breakdown from yet another consolidation. It seems like everyone shorted the dollar yet again. That could have been a key pivot low for the dollar. On the weekly chart that bounce was off a major support trend line helping add some fuel to the rally I would think.

The chart below shows the recent rally and breakout to the upside. Currently the dollar is pulling back to test the breakout level (support). It will be interesting to see how this week unfolds. If the dollar bounces then we just may see metals break below their necklines to make another heavy volume drop.

Weekly Precious Metals Update:
In short, I have mixed feelings for gold and silver. Yes I think they are good long term plays, but after the run they have had it is also very possible a much deeper correction is about to take place and we may not see new highs for another year. That is a long time to have money sitting in an investment when it can be put to work in other investments. I know the herd (general public) is all head over heals in love with gold and silver which is one of the reasons why I think we are nearing a top if we didn’t already see it a couple weeks ago.

Don’t get me wrong I’m not saying to sell of go short metals… not yet anyways. They are both still in an up trend but some interesting things are unfolding which could cause big action in the coming weeks.

Join my trading newsletter and get my ETF trading signals, daily analysis and educational material: www.TheGoldAndOilGuy.com

Chris Vermeulen

11/20/2010

GLD – sell signal this week.
SLV – on buy signal.
GDX – sell signal this week.
XGD.TO – sell signal this week.

Summary
Long term – on major buy signal.
Short term – on mixed signals.
We continue to hold our core positions with a hedge in place to lock in profits. We will lift that hedge upon evidence that the correction has completed.

Disclosure
We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.
We also provide coverage to the major indexes and oil sector.
End of update