The Technicals: Silver Catches Up, Both Metals Have Many Bullish Indicators
This analysis attempts to look at different metrics to understand the current momentum in the gold and silver markets. It is meant as an analysis on potential price direction in the very short-term (a few weeks to 1-2 months).
The last technical analysis in June highlighted that the gold market still looked strong despite big price jumps higher. That conclusion proved accurate as the price has continued to build on recent gains and silver has finally broken out to the upside.
In this latest analysis, the market still looks very healthy but might be due for another consolidation period before attempting $4000 gold and $50 silver.
Price Action
Gold and silver continue to climb higher and higher in a very strong bull market. Very little attention has been paid to the massive price increase over the last few years. There was a recent article that highlighted how gold has crushed the stock market when looking back over 25 years.
Still, even with the price moving ever higher, the action does not look unhealthy. The last two months have seen consolidation in gold while silver caught up. Then both have taken another leg higher.
Outlook: Bullish
Figure: 1 Gold and Silver Price Action
Daily Moving Averages (DMA)
Gold
The 50 DMA has been above the 200 day for over a year now. This confirms the bullish trend is intact. The price has pulled away from the 50 DMA again which will likely lead to consolidation in the near-term.
Outlook: Neutral
Figure: 2 Gold 50/200 DMA
Silver
Silver had been trending in a similar way, but recently shot up big time and may need a bit of time to cool off. Then again, it had some serious catching up to do. Similar to gold, it likely needs time to consolidate.
Outlook: Neutral
Figure: 3 Silver 50/200 DMA
Comex Open Interest
Gold
The latest price pop has happened with a big move higher in open interest. The total open interest had been incredibly low so it is now at around average. That said, this tends to be “hot” money that will bail at the first sign of trouble. Open interest is not excessive yet, but it has definitely absorbed cash on the sidelines.
Outlook: Neutral
Figure: 4 Gold Price vs Open Interest
Silver
Silver open interest has come off the recent highs and has actually increased. This is a very bullsih sign showing that the recent price action is not driven by hot money like gold.
Outlook: Bullish
Figure: 5 Silver Price vs Open Interest
ETF Shares Outstanding
GLD and SLV are the two most popular ETFs that track Gold and Silver. While institutions will buy these funds, this data generally shows retail interest. The chart shows the price and shares outstanding. Shares outstanding is the metric that shows overall retail interest.
Gold
Retail is mostly sitting on the sidelines during this bull market. They have started buying in recently, but no big moves. It looks like just slow accunulation. Retail can be a contrarion indicatior which makes this chart bullish.
Outlook: Bullish
Figure: 6 ETF Analysis
Silver
SLV has seen a little bit of a pop as the recent price spike happened, but it is still well below highs from 2022.
Outlook: Bullish
Figure: 7 ETF Analysis
Margin Rates and Open Interest
The CME uses margin requirements to pull momentum out of the futures market. This is usually done to halt explosive up moves and contain them, but can be used in quick bear markets as both shorts and long are subject to margin requirements. Margin increases force traders to put up more capital or sell off contracts to meet requirements. Managed Money (see CoTs report) are more sensitive to margin increases as they tend to be more levered and capital constrained, so margin increases typically force them to liquidate positions (if they are long prices go down as they sell and if short prices go up). More often, traders are long and higher margin causes forced selling.
Gold
Margin rates have been pushed to their highest level on recent record. There was another hike in margin rates in this latest week and the gold price didn’t even blink. This is a very bullish sign.
Outlook: Bullish
Figure: 8 Gold Margin Dollar Rate
Silver
The last Margin increase came in April which was a big move up. This still looks quite bullish. Margin rates are not yet at all time highs, but they are very elevated and it has done little to dent the price.
Outlook: Bullish
Figure: 9 Silver Margin Dollar Rate
Gold Miners
For short-term moves, the gold miners have been consistently leading the price of gold in both directions for years (i.e., if GDX starts selling off it usually indicates gold will come under pressure). The GDX got slammed in the pullback from the election and gold followed suit. Despite this relationship, the miners have a harder time recovering from big sell-offs. It leads in direction, but not in magnitude. For example, while gold has shot past all-time highs, GDX has only just reached the October levels.
GDX has been very strong indicating that there seems to be momentum behind the gold market. It has risen over 100% YTD. Stock investors are starting to believe in this gold market.
Outlook: Bullish
Figure: 10 Arca Gold Miners to Gold Current Trend
The chart above showoing a big move YTD would possibly give reason for concern, but the chart below should put those concerns to rest. The GDX remains deeply undervalued. Considering the YTD move, it may have some consolidation, but the market finally looks strong. This is a very bullish sign.
Figure: 11 Arca Gold Miners to Gold Historical Trend
Trade Volume
The final indicator is trade volume on the CME. This is related to, but not exactly tied to open interest. Higher trade volume with flat open interest can mean churn. Higher trade volume can also be met with increases or decreases in open interest if buyers or sellers are in control.
In gold, the new high prices have NOT been driven by elevated volume. It’s quite shocking to see how normal the market looks as the price has exploded higher this year.
Outlook: Bullish
Figure: 12 Gold Volume and Open Interest
Silver is in the same boat, reaching new highs with average volume.
Outlook: Bullish
Figure: 13 Silver Volume and Open Interest
Conclusion
Gold has been very strong and silver is on an absolute tear. While this could lead to consolidation in the near-term, nothing about this market looks frothy. In fact, besides the simple price action, nothing is pointing towards a market that needs time to consolidate.
The indicators are all neutral to bullish which suggests that consolidation may be warranted but the price could also just keep moving higher. In either case, the downside looks limited at this point.
