Is the Bottom In For Precious Metals?
Is the bottom in for precious metals?
Silver and gold were annihilated last week. Silver dropped over 35% while gold plunged 17%.
To be clear, both precious metals were insanely overbought prior to this drop. Gold was 16% above its 10-week moving average (the same as the 50-day moving average). At those levels, gold was more extended above its trend than at any point in nearly 20 years, including the peak of the 2011 bull market!
Silver was even more egregiously overbought/ overextended trading 40% above its 10-WMA! It was even more extended than during the pandemic when the Fed was spending $150 BILLION per day propping up the financial system!
Gold is now just 2% above its 10-WMA. While this is NOT oversold, it is getting within spitting distance of a potential buy zone. Historically, outside of crashes (2008, 2020) gold usually bottom when it is 5% below its 10-WMA. So, from a downside perspective, gold might have another 5%-7% in losses to go. For a precious metal that can move that much in a day or two, we’re getting close…
By way of contrast, silver is 3% above its 10-WMA. Histocally it usually bottoms when it’s 5% or 10% below that line. So there is potentially another 10%-15% in downside to go. However, given silver’s volatility, this could unfold within a week or so.
Bottom line, we’re getting within the buy zone for both precious metals. Long-term investors could start nibbling at these levels, but traders might want to wait a little longer before moving in.
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research