The gold price has just recorded a new record all-time high: $2,483 in the spot market on the night of July 17, 2024. Although this new record is a welcome development for precious metals investors, just within the last week a new signal has developed which may spell trouble for investors. This signal could suggest a significant top to develop soon in the gold price, so investors should monitor this developing situation closely.
What is the troubling signal we are referring to?
It is the divergence between the price of the senior gold miners compared to the price of silver.
Why should gold investors care about either the senior gold miners or the price of silver?
Because both are treated as “leveraged” forms of gold by the overall market.
Below we show these three components of the precious metals sector – gold, silver, and the senior gold miners – since February. Notice how both silver and the gold miners have moved nearly in lockstep – indeed both have behaved as a leveraged form of gold, moving nearly twice as high as gold in percentage terms:
The Problem for Precious Metals
So what is the problem in the precious metals sector?
Silver and the gold miners have recently diverged.
Specifically, silver has failed to confirm a significant multi-year breakout, while the gold miners are attempting to confirm a breakout, both at the same time.
One of these – either silver or the gold miners – is correct. The other is incorrect. The two will not diverge for very long. And whichever is correct is likely to lead the rest of the precious metals market over the coming months or perhaps years.
Gold Miners Attempting Breakout
Below we show the breakout attempt that the senior gold miners are attempting to presently make. Note the significant 14-year downtrend that is attempting to be bested as this article is going to press: if the GDX can confirm several more weekly closes above the blue downtrend (36.0), it will have ended the streak of lower prices that has been ongoing since 2011.
This would be a hugely significant development for the entire precious metals complex, as not only would a breakout in the gold miners signify higher valuations for the mining complex, but such a signal would also surely correspond with higher gold prices themselves!
Silver Fails at Breakout
Unfortunately, at the exact same moment that the gold miners are attempting to break out, silver has found itself failing in its own break out attempt.
Below we show silver from 2020 to present. Note the clear 4-year horizontal resistance zone for silver centered squarely at the $30/oz level. Note again how silver attempted over the previous two months to break above this resistance level, but ultimately succumbed to selling pressure in the wake of weakness in the industrial commodity sector over the last two weeks.
This inability to hold above a clear multi-year resistance zone constitutes a failed breakout for silver, and it portends to lower prices to come over the months or even years ahead.
Takeaway on the Warning Signal
Both silver and the gold miners functionally trade as leveraged forms of gold.
Both silver and the gold miners have recently attempted to register significant breakouts: silver above a 4-year horizontal resistance level, and the gold miners above a 14-year downtrend.
Unfortunately, silver has failed in its attempt, while the miners are still engaged in their attempt to do so.
One of these markets is correct, and the other is incorrect: silver and gold miners will not continue to diverge in direction for long.
Whichever market proves correct will lead the other – and ultimately gold prices themselves – in direction for the remainder of 2024 and likely into 2025.
Investors should monitor which component of the precious metals complex proves correct over the coming weeks:
- Should the gold miners prove correct in their breakout, this will be a signal to load up on silver and silver-related assets for a sustained breakout soon.
- However, should silver prove correct in failing to hold its breakout, this will be a signal that both gold and the gold miners should succumb to liquidation over the coming months. Investors would then want to take defensive action by selling some of their holdings and/or initiating defensive positions such as inverse ETF’s or put options.
At www.iGoldAdvisor.com, we are monitoring this divergence and a host of other signals in the precious metals, currency, and commodity markets every trading day. Our premium subscribers will be the first to know when we see a sustained breakout in one direction or the other. We are a fully independent analysis firm, and take no fees nor kickbacks from any company. We publish solely to assist investors to successfully navigate the precious metals and related markets.
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