So Far, Only Half a Breakout

I have been focusing on the gold/silver ratio in recent alerts for a reason. It has been my expectation that silver will lead on the next upleg in this ongoing bull market in the precious metals. Therefore, the gold/silver ratio could provide us with an early warning signal when the next upleg is beginning.

I have focused on two levels in the gold/silver ratio: 58 and 55. Silver has been outperforming gold as expected, and so far, we have broken through one of these levels, as we can see on the following chart.

The gold/silver ratio closed in New York this past Friday at 55.7 (gold closed at $566.00 and silver remained above $10, finishing the week at $10.161). Therefore, we only have one-half of the breakout. Namely, the ratio closed below 58, breaking out of the pennant formation, but it has not broken out from the rising uptrend channel by closing below 55.

Interestingly, we have achieved only one-half the breakout in another way. Silver climbed above $9.85 last week, thereby making a new high for this current uptrend. However, gold has not yet confirmed. It remains below the $572.50 close it recorded in New York on February 2nd.

Half a breakout means that we are only half-way there. While half a breakout is better than no breakout, it does mean we need gold to confirm. Therefore, continue to watch the following levels in the week ahead.

The gold/silver ratio needs to close below 55, and gold needs to close above $572.50. Once these hurdles are bettered, then the forecast in my January 29th alert is likely to be fulfilled:"If the ratio moves below 58, it is breaking out of the pennant. If it moves below 55, it is breaking out of the rising uptrend channel. When that happens, I expect both metals will be soaring, with silver clearly leading the way."

Silver is indeed leading, but now we need gold to confirm by closing in New York above $572.50. At the same time, we need silver to continue leading by seeing the gold/silver ratio break below 55. I expect that these levels will be achieved, and maybe as early as this week. The prospects for both gold and silver remain very bullish.

Published by GoldMoney
Copyright © 2006. All rights reserved.
Edited by James Turk, alert@goldmoney.com

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