Silver Outperforms Gold; Should I Sell My Metals or Buy More?

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". . .two key drivers of PM prices are now vulnerable to a strong move in either direction."

Last week I reported that the signatories to the agreement sold 73% less gold in the first six months of the year when compared to the previous year—definitely a bullish sign.

I think the market has already discounted the planned IMF sale and that it won't cause any disruption to prices. It is completely possible that one of the other countries, China, for example, might snap up the entire amount as they have already indicated.

Recently, relative to gold, silver has been acting very strongly. Gold is more or less where it was a month ago, whereas silver is about $1 higher. Since previously I have said that silver tends to outperform gold during the final stages of an upleg, this recent tendency might cause some nervousness.

Considering the bottom/top cycles present since the beginning of 2009, my research shows that every time this particular period passed, silver either put, or was close to putting, a bottom or a top. This signal is not precise as far as the exact day/price is concerned, but it is reliable in indicating the general tendency.

According to these cycles we are close to the "bottom" vertical line, and are still in the early part of a bigger upswing. This would imply that we can expect higher prices.

The technical situation in the gold and silver markets is still positive. However, two key drivers of PM prices are now vulnerable to a strong move in either direction. The odds favor the continuation of the previous down trend in the U.S. Dollar, but this is not a sure thing. A move higher in the main stock indices has recently become more probable as they have managed to stay above the critical support level. They have been moving sideways, taking a breather, and making the continuation of the previous rally more probable.

Getting back to the question raised in the topic of this essay—long-term favorable fundamentals have not changed, so there is no need to sell your long-term holdings. On the other hand, if you are trading precious metals, you will need to remain cautious in the coming days, and wait for a significant breakout in either direction.

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