I am a man on a ledge. Quite literally. This is Pier C20 in Homa Bay County. Overlooking the great vastness of Lake Victoria and the approaching storm. Closer at Ruma National Park, there is an indescribable feeling of joy when the first rain spray breaks, it is almost an instant transformation, what had been an arid palate all peaches and greys will soon burst into a verdant paradise pulsating with life, the parched earth becomes saturated and the air becomes perfumed with that earthly smell of rain, dormant seeds burst into life, blue swallows blanket the trees and bullfrogs burp in the overfilling water holes.
I always marvel at how quickly these storms materialize, blue skies, sun-kissed deep orange clouds are replaced by dramatic cloud formations, and the air becomes pregnant as the heavy clouds roll across the horizon. And just as quickly as they arrived they are gone. The skies turn crystal clear, the sun shines bright, and the glossy ground is the only hint of the storm that just passed. No one celebrates the rain more than roan antelopes, oribis and blue swallows. If the dry months are focused solely on survival, the wet seasons are all about play. There is a potential mud bath around each corner and every budding shoot is a tasty morsel. Quite beautiful and lyrical. Every day is an adventure, filled with discovery and frivolous fun. It is quite a vista to behold.
That was the silver lining on that out of town jaunt, but back in the dealing room, every day is indeed an adventure, filled with discovery and frivolous fun. Silver which has returned 9.88% year-to-date is at the same time down -5.97% since its highs a month ago. Silver which is also used as a safe haven asset together with gold have been dragged down due to higher prospects of a limited phase one trade agreement between the US and China further diminishing the need for holding the metal insurance in the portfolio. Analysts warn that if the trade conflict between the world’s two largest economies spreads, the global economy could be severely affected.
The next date that investors are looking at is December 15, the day when new US tariffs over $156 billion in Chinese products would come into effect. We do not think President Trump would want to ruin Christmas for Americans, so this current stock market rally could still continue probably to even newer highs and thus make silver and gold head much lower. The market’s fear gauge, VIX index at 13.84 has been dropping for the past 5 sessions. This indicates that the market is less on edge over tail risks factors and with positive momentum and enthusiasm building up we are likely to see lower levels. In the big picture, Silver is developing a corrective consolidation structure with a downward bias in the short term targeting $16.50.
Pivot points are at 16.90 and 17.20 for silver. And for as long as these levels are not breached on a closing basis, then the strong preference is to go short on silver with price targets being $16.80, $16.50 and further $16.30. Silver and gold are positively correlated, and there exists a possibility that silver would follow the same bearish direction of gold. Similarly to gold, silver runs in an incomplete bearish wave, thus, it is likely a bearish continuation based on current price action. A short position will trigger if the silver price drops and closes under $17.00 per ounce with a conservative target at $16.70. If price action extends its declines, silver could plunge to $16.50 and $16.30. Our bearish scenario will be invalidated if the price moves up and closes above $17.20 per ounce.
What is the gold to silver ratio? It is the amount of silver it takes to purchase one ounce of gold. As of writing, the gold-to-silver ratio stood at approximately 85 to 1. That means, at the current price of gold ($1458.85) and silver ($17.03), it would take 85 ounces of silver to buy 1 ounce of gold. This comparison allows the trader to determine the optimal time to purchase one metal over the other. It also helps investors diversify their precious-metal holdings. The Gold/Silver Ratio climbed above 90 back in June 2019, signaling the highest price of gold relative to silver since the all-time peak of more than a quarter-century ago. If silver can overcome the drag from the trade disputes with some safe-haven buying then the price could outperform gold. Still, the gold-silver ratio remains near record highs. For now we are square, waiting for the clouds to align so as to get our silver lining.