The Precious Metals Sector Looks Ready To Breakout

The charts of both gold and silver look extremely bullish, with gold looking ready to break out to new all-time highs and silver looking ready to break out over $30 to its highest level in over 11 years. 

Gold of course broke out to new all-time highs in mid-March when it vaulted over $2200 and broke-out of a three-plus year « handle » that was part of a massive 13-year cup-and-handle technical formation.

On the other hand, silver is still $21 below its all-time high going back to 1980. It almost got back to that level in 2011. However, poor man’s gold looks set to break-out from a three-year inverse head-and-shoulders formation, with the « shoulder line » at $30. There’s been stout resistance at $29 but silver sling-shot over $29 yesterday (Wednesday, May 15th) and appears to be ready to attempt an assault on $30. By the time you read this, it may well be over $30.

It is worth watching the gold:silver ratio (GSR) for a signal that silver is ready to rumble.

The chart below is the five-year daily for the price of silver (candle sticks) plotted against the GSR (blue line).  The upper green line shows the resistance price for silver at $30 going back to the summer of 2020. The lower green line marks the uptrend of the GSR since early 2021. If the GSR breaks below that trend line, that’s the signal to move a majority of capital allocated to the precious metals into silver and silver mining stocks. 

The GSR is currently at 82 after trading as high as 92 earlier this year and up to 97 in 2023. It traded down to 63 in early 2021, which put silver at $30. If gold were to hold at just $2400 while the GSR falls to 63, the conservative price objective for silver would be $38.  But it’s silly to assume that silver would move 30% higher from its current price while gold stays constant. So $38 is a very conservative minimum level price objective.  

If the current bull move in the precious metals sector resembles the move from late 2008 to mid-2011, the GSR could fall all the way to 31, where it bottomed in 2011. Let’s give gold a price target of $3000 in this scenario. If the GSR were to drop to 31 eventually, that would imply a price objective of $96.

If the current bull move in the precious metals sector resembles the move from late 2008 to mid-2011, the GSR could fall all the way to 31, where it bottomed in 2011. Let’s give gold a more realistic price target of $3000 in this scenario. If the GSR were to drop to 31 eventually, that would imply a price objective of $96 for silver.

If and when silver makes its way up to $38, the silver producing mining stocks, as well as the junior project development stocks, will go nuts to the upside. If the current bull cycle resembles the 2008 – 2011 bull cycle and silver heads toward $100, all of the mining stocks, but particularly the silver-based stocks, will provide lifestyle-changing profits. 

That said, in my opinion both the technical and fundamental factors that drive the precious metals sector are supportive of a large move higher in the coming months and quarters. Investors who overweight their portfolio with gold and silver investments, including physical gold and silver, have a good probability of generating tech-bubble type profits.