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Silver Should Outperform with Break Lower in Gold-To-Silver Ratio

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Gold-to-Silver Ratio is simply gold price divided by silver price. After spiking to all-time high at 126.4 on March last year to 126.4 due to the fear of Covid-19 pandemic, it has turned lower considerably.  The average ratio in 300 years history is around 30 as the chart below shows:

The natural ratio in the earth’s crust, according to some mining producers, is around 8 to 1. That means every 1 ounce of Gold mined, there is 8 ounces of silver. If one just simply uses the average ratio of 30 to 1 and apply to the current price gold, that suggests the price of silver should be $1820 (per February 4, 2021) / 30 = $60. Yet, the price of silver today is only $26 which suggests the metal is undervalued.

This week, due to the rumor of the Reddit community trying to target Silver, the metal has spiked 10% over the weekend and take out last year’s high of $29.8. It has since completely reversed the spike, but nonetheless the break above last year’s high carries significant technical implication. Gold-to-Silver ratio has also broken lower creating a bearish sequence since last year as the chart below shows

Gold-to-Silver (GSR) Ratio Elliott Wave Chart

Gold-to-Silver ratio

The chart above suggests the decline from 3.18.2020 high is unfolding as an impulsive 5 waves and ended wave a at 68.90 on September 2020. The ratio since then has been consolidating and ended wave b at 85.14. It has broken below wave a again this week suggesting the next leg lower has started. This ratio is inversely correlated with the underlying physical gold and silver. In other words, when the ratio breaks lower, the price of Gold and Silver will trend higher with Silver outperforming Gold.

Silver (XAGUSD) Elliott Wave Chart

After bottoming on March 18, 2020 low during the Covid-19 selloff, Silver rallied impulsively from $11.64 to $29.86 in a matter of just 5 months. That rally ended wave I or A. It then corrected 27% in just a little over 1 month ended wave 2/B at $21.6. With this week’s price action, Silver manages to take out wave I/A and creates a bullish sequence. Furthermore, the rally from wave 2/B low is in 5 waves (diagonal), suggesting further upside is likely while pullback stays above there. Alternatively, Silver can do an expanded flat in which 9.25.2020 low is wave ((A)) and the marginal high is wave ((B)), and now can see wave ((C)) of II/B lower which can potentially break below 21.66 before the metal rallies higher again. This view however is not our primary view as we don’t forecast a flat against a clear trend.

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Elliott Wave View: Is Gold Bottom in Place?

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Since bottoming on December 1, 2020 low at $1764., Gold has steadily risen. Short Term Elliott Wave View suggests the rally from December 14, 2020 low is unfolding as a 5 waves impulse Elliott Wave structure. In the 45 minutes chart below, we can see wave 1 of this impulse ended at $1906.74 and dips in wave 2 ended at $1855.55. Up from there, wave ((i)) ended at $1900.56 as 5 waves impulse in lesser degree. Dips in wave ((ii)) ended at $1893.90. Gold then rallied higher again in wave ((iii)) which ended $1943.80, then wave ((iv)) pullback ended at $1928.80.

Final leg wave ((v)) ended at $1955.32 and this completed wave 3 in higher degree. Wave 4 pullback is now in progress to correct cycle from December 21 low before the rally resumes. Potential target for wave 4 is 23.6 – 38.2% Fibonacci retracement of wave 3 which comes at $1916 – $1931. From this area, Gold may find support and resume higher again. As far as December 21 low pivot at $1855.55 low remains intact, expect dips to find support in 3, 7, or 11 swing for more upside.

XAUUSD 45 Minutes Elliott Wave Chart

Gold Elliott Wave Chart

Gold (XAUUSD) Elliott Wave Video

Elliott Wave View: Potential Target for Gold’s Correction

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Short Term Elliott Wave view in Gold (XAUUSD) suggests the metal continues the correction lower. The internal of the decline from November 9 peak is unfolding as a zigzag Elliott Wave structure.  Down from November 9 peak, wave ((a)) ended at 1850. Up from there, bounce in wave ((b)) unfolded as a zigzag in lesser degree. Wave (a) ended at 1890.41, wave (b) ended at 1855.30, and wave (c) of ((b)) ended at 1898.92.

The metal has resumed lower in wave ((c)). Internal of wave ((c)) is unfolding as a 5 waves impulsive structure. Down from wave ((b)) high at 1898.92, wave (i) ended at 1863.75 and bounce in wave (ii) ended at 1896.01. Down from there, wave i of (iii) ended at 1851.8, wave ii of (iii) ended at 1879.89, and wave iii of (iii) ended at 1820.40. Expect bounce to fail in 3, 7, or 11 swing against 1898.92 pivot for a few more lows before the metal completes wave ((c)). Potential short term target to the downside is 100% – 123.6% Fibonacci extension of wave ((a))-((b)) which comes at 1757.2 – 1784.3. From this area, expect the metal to resume higher or bounce in 3 waves at least.

XAUUSD 60 Minutes Elliott Wave Chart

Gold Elliott Wave Chart

XAUUSD Elliott Wave Video

StrikePoint Gold ($STKXF $SKP.CA) Correcting March Cycle

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More coverage on the theme of Precious Metals market series that I am doing right now.  I am looking for Jr. producers that offer lucrative setups and are technically clean from the March cycle low.  StrikePoint has a fairly clean chart, but is in deep penny stock territory.  Rallying from a low of 0.01 cents to a high of 0.21 into the September Peak represents a very nice 2100% gain.  StrikePoint is an exploration company, and thus, represents extreme risk.  But the chart has followed the precious metals sector very closely off the March low, so there is no reason to believe it will be any different on another swing higher in Gold and Silver.

We are going to take a look at chart since the all time low set in March 2020.  This is an OTC ticker, the Canadian Symbol SKP.CA and they are listed on the TSX Venture exchange in Canada.  The Canadian chart will have different pricing, but the structure will be the same.

StrikePoint Elliottwave View:

StrikePoint

Since the March 2020 lows, the count is showing a clear impulsive structure into the September Peak.  Red I is favoured to have set at 0.21 on September 18. It is possible that this correction has completed at the ((W)) low.  However, our current expectation with gold and silver, is that there is still more downside possible.  With this in mind, I am looking for lower prices still on this stock.  There is no extreme area to measure since the connector ((X)) is not yet complete.  the 0.618 retrace for the rally from March low, to September peak, comes in at around 0.08.  So that may the area where a low may occur.  We do not like to trade the middle of a trend, but like to trade extreme areas.

This stock seems to be tracking Silver, more than Gold.  It really started to outperform when Silver broke out above $19.  Presently, the chart is still favouring one more swing lower in a double correction. As this is a penny stock, it is important to use proper risk management.  The technicals on this chart are fairly clean, and I favour the price structure to track silver closely until silver sets a low also.

Risk Management

Using proper risk management is absolutely essential when trading or investing in a volatile stocks.  Elliott Wave counts can evolve quickly, be sure to have your stops in and define your risk when trading.

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Gold-to-Silver Ratio Suggests Further Upside in Precious Metals

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Government and corporations around the world continue to accumulate unsustainable debt. Since it’s unthinkable for developed countries such as the United States to default on the obligation, the only way out of this situation is to continue to debase currencies. This environment is very supportive for Gold and Silver in coming years. Indeed, Gold has broken to new all-time high against all other world currencies including US Dollar. The chart below in Gold suggests a simple 100% extension from all-time low should see Gold reaching $2900 as a conservative target.

Furthermore, Gold-to-Silver ratio also confirms the direction of Gold and Silver remain bullish as the chart below suggests. Gold-to-Silver ratio is the ratio of gold price / silver price.

Gold-to-Silver Ratio Weekly Chart

Gold-to-Silver Ratio weekly Chart

The chart above shows an overlay of Gold-to-Silver ratio chart (top chart) with Gold (middle) and Silver (bottom). We can observe an inverse correlation between the ratio and the price of the underlying metals. The dotted vertical line above shows important swing high and low in the instrument. In between the vertical lines, we can see when the ratio formed significant peak, the price of gold and silver formed significant low and vice versa.

We can also see the ratio has reached perfect 100% – 123.6 extension blue box from March 1980 in 3 swing. From the blue box, the ratio reversed down violently. The current decline has broken below 2011 rising trend line suggesting the uptrend has ended. Expect the ratio to continue lower in coming years with possible next target at around 40 which is the lower end of the multi decade channel. Due to the inverse correlation, we can expect the price of Gold and Silver to continue higher in coming years.

Gold-to-Silver Ratio 4 Hour Elliott Wave Chart

4 hour chart of Gold-to-Silver ratio above shows a 5 waves impulsive structure from March 18, 2020 high. Short term, another leg higher still can’t be ruled out to end wave b before the ratio turns lower again. If the ratio is still doing another leg higher as expected, then we can’t rule out further correction in Gold and Silver due to the inverse correlation. Afterwards, when the ratio starts turning lower again, the price of Gold and Silver can start to extend higher.

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GDXJ (Gold Miners Junior) Correction Maybe Completed

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Gold and related Index such as Gold Miners Junior (GDXJ) maybe ready to make the next move higher. The next important catalyst in the market is the US election and the second Coronavirus relief package. Nancy Pelosi and Treasury Secretary Steven Mnuchin continue to have discussion about the size and language of the stimulus bill. As the election is getting closer however, there’s skepticism whether Congress can approve the package before the election. Furthermore, Republican senators have indicated they won’t approve the bill even if the White House and Democrat can agree on the bill.

It’s however certain that the second stimulus package will come. The question is not whether it will come. Instead, the question is when will it come and how big. There is a belief among market participants that if Joe Biden can win the White House and Democrats can take over the Senate, Democrat can introduce a much larger stimulus package. As of now, the White House proposed $1.8 trillion package while Democrat proposed $2.2 trillion.

When the second stimulus package comes, it’s likely to create further support for the stock market. In addition, US Dollar should resume lower as the monetary and fiscal stimulus continue to debase the currency. One beneficiary for currency debasement is Gold and by extension Gold Miners. We wrote an article about Gold Miners Junior ($GDXJ) back in July 21 calling for further upside as it broke a 7 year basing pattern. Here’s the link to the article: Gold Miners Junior (GDXJ) breaks 7 year base

Since then, it has retraced the breakout base as chart below shows:

GDXJ (Gold Miners Junior) Monthly Elliott Wave Chart

GDXJ Monthly Elliott Wave chart

After the initial breakout above $52.5 in July, the Index has retraced the resistance-turned-support at the same level. There’s a possibility that the Index can resume higher again now. US election and further prospect of stimulus may become the catalyst for the move higher.

GDXJ (Gold Miners Junior) Daily Elliott Wave Chart

Gold Miners Junior ($GDXJ) Daily chart above shows it did a double three (W)-(X)-(Y) correction in the past 3 months to end wave ((2)). It has since turned higher but still needs to break above wave ((1)) at $65.95 to avoid a double correction. The Index now has a chance to resume higher and the next leg higher will get confirmation once it breaks above $65.95.

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