Tug Of War: Silver Is Standing Its Ground Against The Mighty Dollar

SD Midweek: With crude oil above $71, a dollar that looks tired, and a silver price that doesn't want to budge, things are about to get very interesting...

I put the tight range back onto the silver chart:

It really is amazing just how much control the cartel has to keep silver between $16.40 and $16.60.

Notice the volume is starting to fade. Trading volume is starting to look like it did coming off of the December smashing, but there is one big difference: Silver is holding it's own.

Sure, the range is pure agony, because price is not dropping for buyers, and price is not rising for those who have already bought. But the volume is promising because it is looking like the sideways channel really is a correction over time instead of price, and this correction looks like it's running out of steam.

Here's a question: With crude oil now over $71 a barrel (Brent even more), once the trading volume comes back into silver, will it be on the sell side or on the buy side?

I think it's coming back on the buy side.

It's really hard to see how a rising cost of crude, coupled with rising interest rates, coupled with bullish fundamentals for the white metal are going to translate to a break-down in price as opposed to a break-out.

I mean, are we really going to be talking about $15 silver in the summer of 2018?

We'll see.

In the meantime, the number of ounces of silver it takes to buy one single ounce of gold is also now fully range-bound:

We've got a print of 80 on the board again, but look at the last five days. That's a pretty tight range. However, looking at the intra-day spike high of 83.21 in early April to yesterday's close of 79.75, it's pretty clear the gold to silver ratio is in a topping process.

Gold is having a hard time getting off of its 200-day moving average:

The yellow metal really needs to make a move, or the 50-day will start closing in fast on the 200-day, and we really do not want to see a "death cross" painted on that chart.

So I'm starting to think that with the next break-out, it will be silver that leads the way this time.

Finally.

Gold outperformed silver last year, and while this year has not been what any of us wanted to see (again, unless your a buyer right now and not one of the "tapped-out consumers" we keep reporting on), everything is lined up for silver to outperform gold.

After putting in a "death cross", there's been nothing coming out of palladium:

Over the last several days, palladium's range is tightening, looking a lot like silver, with an approximate 1.25% range in price.

Part of the mixed signals is because these metals want to rally.

They would, were markets left to natural market forces, but since they're not natural, even the less manipulated metals like palladium are not immune from head-scratchers - like, we've got a "death cross" on the chart, but the technicals are neutral and price has actually treading water to slightly rising in spite of the bad omen.

Platinum is even rising coming off of it's own "death cross":

Despite the series of lower-highs and lower-lows, the technicals in platinum are not extreme.

But look at the theme here: We have "death crosses" in two of the precious metals, silver's 50-day moving average has been below the 200-day since last November (meaning it already had a "death cross" months ago), and if gold doesn't start moving up in price, the yellow metal will put in a "death cross" of it's own.

Talk about a bleak outlook, but that's what we have.

For anybody who is a contrarian or a value investor, it's music to our ears, because I don't remember who said it, but what's that saying about "I'm a buyer when it's hated the most".

Yeah, I'm that guy too.

And it's hard to pile on much more hate than the precious metals already have.

Further adding confusion to the mix, is the performance of other commodities.

Copper is wanting to put in a "death cross" of it's own right here, right now:

I'm quite sure there's specialized team working for the cartel that knows how much silver comes to market or how much stays in ground based on the copper price.

Right now, the demand for physical silver, especially from the retail investor, is just not there, so copper is allowed to drift and fade.

I mean, if silver is abundant right now, no sense in keeping an elevated floor on copper.

Crude, however, is a beast of it's own right now:

Everybody keeps calling for a correction or a crash, but look at the RSI right now - it's not even above 70, so crude is not downright screaming "overbought".

Sure, the price of crude is starting to get ahead of itself, but there are other fundamental macro forces at play that could see the price ride even higher from here without much of a correction.

Two of them that come to mind is inflation in general, which, since energy is the lifeblood of the economy, is a self-reinforcing feedback loop, and then there's the whole geo-political risks and potential for supply disruptions and even outright war.

Those fundamental macro-factors are still being priced into the price for a barrel of crude oil.

Now, contrast crude oil to the U.S. Dollar:

The dollar has risen 13 of the last 16 days. Overnight and into this morning, the dollar has been dropping, however.

The point about the dollar is, when compared to crude, what I highlighted in yellow on the chart.

The Relative Strength Index (RSI) has been in "overbought" territory for weeks now. It's really looking like the dollar is going to roll over here.

Now I get it, "it can remain irrational longer than I can stay solvent". Well, that's why I don't have a position in the dollar, unless you count gold and silver as the anti-dollar position.

But there's another point about the dollar I'd like to make in relation to silver especially: Silver has only fallen 9 out of the last 16 days, or, conversely, silver has risen 7 out of the last 16 days. See the point here - silver is holding it's own in comparison to a surging dollar.

That is another sign we're near the end of these moves.

Can the dollar strengthen from here?

It could.

I forecast 93 as the top in this bear rally. Call it an extended and quite impressive dead cat bounce. But looking at the chart, the dollar would have a heck of a time getting past 94. There's stout resistance from all the way back to July of last year.

Break-through 94, however, and it's a direct flight to 97.

I just don't think the world can handle a surging dollar like that, not after the four year run, but then again, nobody thought we'd be smashed down and confined to the basement with gold & silver after so many years either. But there is one difference - The world, like it or not, runs on dollars. So where gold and silver are for the smart people who are accumulating now and rightfully expecting capital gains along with wealth preservation, inflation hedging and all of those reason why people buy gold & silver, sovereign nations and the people within many countries transact with dollars on a daily basis, so whereas a rising or falling gold price is secondary right now to the daily currency needs of the people, a strengthening dollar or a weakening dollar has a direct impact on everybody.

And the pain has been excruciating for many nations, especially the emerging market nations.

Shifting gears, I'd like to make a point.

Tensions are heating up in the Middle East again, which could include a nasty war between Israel and Iran, which would most certainly draw in the U.S., U.K., France, and Syria, and would Russia just sit on the sidelines after having a stake in Syria for so many years?

Needless to say, the Middle East, including U.S and Russian intervention, is an absolute powder keg looking for a spark.

Was President Trump's exit from the Iran Nuclear Deal that spark?

We'll see, but I bring up the escalating geo-political tensions for a reason.

That reason happens to be this farce:

Amazing.

After spiking to 50 earlier in the year, and with the drop in the stock market, and with all the uncertainty gripping markets and politics around the globe, the VIX is going to fade all the way back down to 10?

Just amazing.

Nothing more to say about market volatility other than the cartel suppresses vol like the do the metals.

But just like with the metals, they can contain and direct the outcome for some of the time, and perhaps most of the time, but not all of the time, and the times when they cannot contain, suppress and direct, watch out!

That's when we get those explosive moves the experts keep talking about.

The stock market is seriously starting to look like it could roll over again:

There has been a theme of "death crosses" throughout this Midweek Update.

What is going to happen as the 50-day moving average continues to drift lower?

Is a "death cross" on President Trump and the Fed's beloved Frankenbaby even price into the market?

Talk about being blind-sided.

The technicals matter, and moving averages matter.

Most people would not be scooping up shares of the Dow if it put in a "death cross". In fact, most people would likely be sellers.

Look at the metals to see what I mean - completely unloved and unwanted right now, and three of the four precious metals have put in "death crosses" already, and if gold doesn't get moving soon, the yellow metal will put one in too.

That's the power of the technicals, whether we want to accept it or not.

Finally, let's look at the yield on the 10-Year Note:

I've put our new range on the chart of 2.9% to 3.0% for a reason - We're nearing the top of the range again.

Is today the day we break-out in yield above 3.0%?

If the yield does, then at one point that 3.0% yield will become support, and that's when things will really start getting interesting.

Stack accordingly...

- Half Dollar