July 2019

Gold and Silver Break Out!

We've deviated from our normal newsletter this month because of some significant developments in the gold and silver markets. As long time clients know, at OWNx, we do not comment on the short-term swings in the price of gold and silver. The reason is simple. We see these metals as the cornerstone for any portfolio, and steady accumulation over time is a great way to build that cornerstone. However, since our last newsletter, both gold and silver have made noticeable breakouts on their multi-year charts. This is a significant development that bears watching closely. Let's start by looking at the long term gold chart.


As you can see, in 2016 gold broke out of a multi-year downtrend. It has since been on a slow, steady upward trend, but until recently has been blocked at resistance in the $1,375 range. It has now decisively broken above that multi-year resistance and is testing final chart resistance in the $1,425 area. Beginning in January 2016, the technical chart for gold has painted a nearly-textbook long-term reversal.

  • Major bottom in December of 2015.
  • Bottom tested in late 2016 and held with a higher low.
  • That bottom tested in 3Q2018 and held with another higher low.
  • During that period, a range of resistance was set at $1,375.
  • Pullback from resistance in 2Q this year and a strong bounce to decisively break it.

These are all indications of a very strong long-term bull market taking shape.  It is possible if not likely that there will be a period of time where gold trades between roughly $1,375 and $1,425 while the market digests this development. How long is anybody's guess. When it does push above $1,450 for any sustained length of time, the next leg in the bull market will likely have begun with the next target being in the $1,600 range.

Now, let's look at silver... Our favorite white metal has also experienced a multi-year breakout of its own.


We also see that the strength of the breakout in the price of silver is significantly lagging behind gold. Is that a good or bad sign? All we have is history to guide us. What happened at the turn of the last-long term bull market in gold and silver, which began in 2002?

In April-June 2002,  gold finally broke out above $300/oz. (yes that was the last major breakout level!) after spending several years under and around that price. While it rose to over $400/oz. (a 33% gain), silver remained trapped under $5 per ounce until November of 2003.

Looking at today's long-term silver chart, what do we see? Similar price action. Silver actually re-tested the low set in December of 2015 just last year, in late 2018. It has only recently broken out of a three year downtrend.

Let's return now to the last bull market. What happened after November 2003? With the silver to gold ratio in the 80:1 range, silver spent the next six months playing catch up. While gold traded sideways just above $400, in April 2004, silver rose to over $8 per ounce (a more than 60% gain) before pulling back and forming a new base in the $6 to $7 range. Gold and silver then spent the next year linking up and forming a base where, in late 2005, they began an epic march to their 2011 highs.

So what does all this mean?

Past events do not always predict future behavior. What we see, however, is that the pattern that gold and silver established in the late 1990s and early 2000s is similar to what we see today. Gold is leading the breakout from a multi-year decline, and silver is lagging with the silver to gold ratio near 85:1. In just the last week, it has fallen from 90:1, so silver's catch-up move may have begun.

We want to be clear - we are not investment advisers and do not make predictions on the speed at which prices may rise, how long a bull market may last, or the final high. What we are doing now is pointing out to you, our clients, that there has been a major long-term development in the gold and silver markets that has historical precedent. What you do with this information is up to you. Our platform and our team are here to serve you as this next phase in the gold and silver markets unfolds.

Suggested Reading

Facebook Announces its Crypto Project - Libra

Love em' or hate em', Facebook's crypto project, Libra is going to force regulators and central banks around the world to show their hands. We will now see how they really feel about the world of crypto currencies and how/if they will let them play in the monetary sandbox.

Global Growth is Slowing

The global think tanks and financial institutions continue to dial back expectations on global growth later this year and into next. The primary drivers are Brexit uncertainty (still!) and the US/China trade war. The jury is still out on a recession, however. That may depend on the Fed's reaction to slowing growth - and they have had trouble providing clear guidance recently.

OWNx Out of Office Dates:

August - none.

September - Labor Day, 9/2.