To The Moon

Last week, silver surged to a new high even as gold’s performance lagged significantly, far exceeding my earlier expectations. In hindsight, this trading and manipulation pattern bears resemblance to that of Ethereum/Bitcoin this year: the larger-cap asset first posts consecutive new highs, followed by a rapid rally in the smaller-cap one to hit an all-time peak. While such fundamentals-defying gains have proven short-lived in the crypto market, one should not go against the prevailing trend.

Silver recorded a weekly gain of over 10% last week, and the emergence of a new high means there are no technical reference points to rely on. As long as it trades above the 54.4 level, the market is clearly dominated by bulls. Since its 2022 low around 17.4, silver has seen a rally of more than 300% in this cycle, matching and even surpassing the absolute gain of the 2020-2021 rally. When compared to the 600% surge during the 2007-2008 financial crisis bull market, there is roughly double the upside potential remaining. Although even larger gains can be found in much older historical data, their practical reference value is minimal.

From the perspective of the monthly historical chart, silver’s rally history has followed such an irrational vertical trajectory. Moreover, there are no variables to serve as reversal signals before a monthly decline occurs. Worse still, when a sharp monthly drop does materialize, 20-30% of the value may already have been erased, making it difficult to execute ambush short positions or chase declines to short. However, we can draw some lessons from the historical performance of gold and the crypto market.

Gold’s stagnation last week left it 3% short of its all-time high near the 4400 level. Under normal circumstances, if silver still has significant time or price upside ahead, gold needs to hit a new high at least this month, with the best-case scenario being a catch-up rally to a new high as early as this week. Conversely, if gold fails to mount a rally to a new high this month, it would signal that silver cannot sustain its strong momentum.

When looking to cryptocurrencies for reference: Bitcoin set new highs in July, August, and October this year, while Ethereum has not made any gains since its August peak. On a granular level, Bitcoin topped out in sync with Ethereum in August and pulled back in September, with its October new high representing only about 1% of upside. Assuming the manipulation pattern we hypothesized at the outset holds true, a possible scenario would be a pullback in precious metals in December or January, followed by a false breakout to a new high in gold triggered by some unexpected news, and then a sharp decline in its wake.

Combining these two reference points, we can roughly outline two potential trajectories. First, if gold quickly hits a new high this month, silver will continue to lead the rally and drive gold upward. Second, if gold refuses to break to a new high, precious metals will enter a high-level consolidation phase, but gold may stage a false breakout to a new high in Q1 next year amid a sudden news event, before ultimately following in the footsteps of cryptocurrencies.

As for the widespread view that gold and silver still have massive upside potential in the current environment, I hold a different opinion. The core logic is that the Trump administration has continued the Biden administration’s approach to financial market management. Under the “troika” framework, the likelihood of one segment collapsing abruptly while another surges is slim.

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