What Silver (And I) Told You

Every number on today’s calendar came in as expected. Producer prices rose 0.4 percent on the month, matching the consensus.

Initial jobless claims were 206,000 against 205,000. Existing home sales were 3.98 million, on the forecast to the decimal. The ECB’s hike was fully priced. Nothing surprised anyone.

And yet: S&P 500 futures held below their rising support line and declined below the June high, WTI crude traded above $100, silver fell from above $67 overnight to below $65, copper lost almost 5 percent, and gold lost about $60 to trade near $4,400.

When markets sell off this hard on data that matched expectations, the data is not the reason. The reason is what the market was already leaning against, and today two things gave way at once: the stock market’s breakdown, and any remaining belief that oil was coming down.

Stocks: The Breakout Is Being Invalidated

Yesterday, I wrote: “If stocks close today’s session below both the rising support line and the June high, things are likely to get volatile quickly.”

Yesterday, stocks closed below the support line, but above the June high (in terms of the closing prices).

This morning, S&P 500 futures broke below the latter as well.

On Tuesday I asked whether the August move above the prior highs was a breakout or a fakeout, and wrote that the day’s evidence “leans toward the second.” I’m now leaning toward this option even more.

If we get a daily close below the June high, we’ll have another bearish confirmation. This could lead to waterfall selling with massive spillover effects for other markets. Copper and silver seem to be already reacting to this move (as well as to higher crude oil price), but I’ll get back to this later today.

Stock market is the first item in the chain that ran this morning, and the one that explains the metals. A stock market invalidating its breakout while oil sits above $100 and the Fed is a week from hiking is a liquidation setup, and in a liquidation, silver and copper get sold as industrial assets, the miners get sold as equities, and gold gets sold as collateral.

That is the order of today’s damage: silver and copper worst, FCX worst among the stocks I follow, gold least. Nothing about it requires a data surprise. It requires only that the buyers who chased the August highs in stocks, copper, and the metals all discover on the same morning that the highs did not hold.

Silver Did What Silver Does

Yesterday, I wrote: “Silver outperforming gold on a short-term basis, inside a consolidation, with gold itself unable to rise, is the sequence I described on September 3.” And: “it tends to mark short-term tops rather than bottoms.”

It marked one.

Silver price fell through $66 and then $65 this morning, taking out both its 50-day and 200-day moving averages in a single session, and is underperforming gold by a wide margin after outperforming it on Wednesday. That is the full signature in two days: silver leads on the way up, gold does not follow, silver leads on the way down.

The Right Shoulder Is Sagging

Gold lost the $4,396 to $4,422 area this morning and trades near $4,400, about $60 below Wednesday’s close. The head-and-shoulders top I have been describing since Friday has its neckline near $4,320, and a daily close below it would complete the formation with its target below $4,000. Note: I was too conservative in the previous target based on this formation when I wrote that it points to $4,100. That was based on the neckline being horizontal and it’s actually declining.

Either way, the formation is not (yet) completed.

This Week’s Calls

Five calls from the past ten days have now been tested, and the table below shows how each one resolved.

Where This Leaves Us

My outlook and positions are unchanged, and the profit-take levels remain in place.

The market was given nothing to react to today, and it reacted anyway. That is the most bearish thing it has done all week.

Thank you for reading today’s analysis – I appreciate that you took the time to dig deeper and that you read the entire piece. If you’d like to get more (and extra details not available to 99% investors), I invite you to stay updated with our free analyses – sign up for our free gold newsletter now.

Thank you.

Sincerely,

Przemysław K. Radomski, CFA