What’s Changed to Cause the Gold and Silver Breakout?
The comments below are an edited and abridged synopsis of an article by Tom Luongo
Gold and silver are on the move and we should be asking, “What in the holy hell is going on here?”
There are a number of factors at play, and Luongo discusses the relationship between the breakdown of the US dollar index and the euro, and why this is important for gold.
How gold closes this month is what sets up the probability of what it should do in August. If gold were to close July where it closed last week ($1,901.15), then there is a 90% chance of gold breaking July’s high and just a 1.2% chance of gold breaking the July low.
And given that, in any single month, gold moves $80 (on average) and the difference between closing prices is $63, there is an excellent chance that breaking the July high in August will also create a new all-time high.
Those are the odds. Being long gold, despite the apparent frothiness, is the right play. Until there is a weekly close that alters that picture, throwing some form of reversal signal that violates a previous low, gold is a buy.
Silver’s position is even more interesting, because silver is now two years behind gold in terms of the big picture (quarterly chart breakout), and it hasn’t even had a chance to run before people are calling for it to collapse.
Last week, silver finally bested the post-Brexit high of $21.25. It was set up by two huge weekly closes that pushed through near-term resistance above $18.00. The previous week’s close at $19.32 was met with massive follow-through buying that pushed the price through what should have been stronger resistance above $20.
Silver is way beyond its normal trading behaviour, but coming off the strong June close there were 9.5:1 odds that silver would break the Q2 high in Q3 and use that energy to challenge first the Q1 high and then the 2016 high. That it did all of these things in three weeks tells us how strong bullish sentiment is, and how pent up the demand for silver was.
Silver isn’t a monetary metal, nor is it a safe-haven asset like gold. So it could be telling us something is changing in the strategic metals complex, which should scare all the V-shaped recovery believers.