Silver rings the bell

Something very interesting is happening in the metals and mining market right now.

As you know, the winds of war have been driving every asset market. Stocks, bonds, and commodities (including gold and silver) have risen along with hopes for peace, while oil and the dollar have fallen when those hopes emerge.

And of course, the opposite has occurred whenever those hopes have been dashed.

But something important changed last week...

On Wednesday, all the markets surged when the outlook for a resolution with Iran seemed as positive as ever. Gold jumped over $130, and silver exploded 6% higher.

Then, hopes were once again dashed on Thursday, sending the U.S. stock market lower...but gold and silver bucked the trend and gained on the day.

As I commented to our Gold Newsletter Alert readers on Thursday:

Not too shabby o performance after yesterday's big gains for gold and silver. But what is really intriguing is the fact that the major U.S. stock indices fell today after early gains, on rumors that Iran was going to reject the U.S. peace proposal.
On that news, oil and the Dollar Index also reversed higher.
Gold and silver also fell from their peaks on the news, as one would expect...but they still remained well in the green with nice gains, precisely as one would not have expected.
I’ve been preaching about the positive correlation between gold and the stock market, and the metal’s negative correlation with oil, since shortly after the Iran conflict began. At least for today, those correlations have reversed.
So is this the big turnaround we’ve been waiting for? Is a resolution with Iran truly at hand? Is gold breaking free of its ties with other assets and beginning to trade on its own bullish fundamentals?
We’ll discover all of this in the days just ahead. But for now, it’s a very positive sign.

The good news is that the positive signs have continued.

Today, after dour news on the Iran front over the weekend, U.S. stocks fell early on. Gold did as well, as traders sold it quickly out of long-standing habit.

But...silver diverged, leaping higher from the get-go. Mining stocks also rose, despite gold’s decline.

As I write, gold has regained all of its losses and surged into the green. U.S. stock indices have also rebounded, but gold recovered before they did.

What does all this mean?

The truth about Silver and mining equities in a bull market

Throughout the first 18 months or so of this bull market, when gold was being driven higher by central bank buying while silver and mining stocks remained stuck in the mud, it became quite fashionable for pundits to say that this was perfectly normal.

They claimed that silver and gold stocks always lag gold.

Nothing could be further from the truth. In fact, over my decades in this business, watching these markets daily, it has always been a well-known fact that these leveraged sectors led moves in gold, especially in bull markets.

That’s because buying from Western investors/traders traditionally drove the entire metals and mining sector, and these sharpies always jumped on the bandwagon early with the most sensitive and leveraged plays.

Central banks don’t buy silver or mining stocks, so this time was, to borrow a dangerous phrase, different.

When Western traders jumped into the sector with enthusiasm at the end of last summer, coinciding with Jerome Powell’s Jackson Hole speech that previewed rate cuts, the historic patterns began to reemerge.

So silver and mining equities are once again leading indicators for gold. Which brings us to what’s happening right now...

The chart above shows how the gold/silver ratio has plummeted in recent sessions, as silver began to dramatically outperform gold.

Silver is somewhat of a special situation right now, with extraordinary supply dynamics surfacing. Consider that China, which has historically been a net exporter of silver, is currently importing silver at a record pace.

So, just in case silver is moving for very specific supply/demand reasons right now, let’s check in with gold stocks to see what they’re indicating...

Well, look at that. The GDX/gold ratio took off last week, rising simultaneously with silver.

Looks like they’re telling us something. And this chart of gold itself, updated as I write, also indicates that the bottom may be in:

Even as gold has recovered today, silver has surged another 5.5%, while the mining indices are up about 3%. And let’s not ignore copper, which is setting another all-time record right now.

Now, all this said, the next big rally in gold may still be a little way off. A final resolution in the U.S.-Iran war may be the final needed ingredient to spark that move.

But judging from what silver and mining stocks are telling us, it looks like the bottom is behind us.