Happy Tuesday, GoldBuzzers!

Last week ended with Gold settling at its lowest level in more than a year and silver sliding under $50. In today’s Take Action Tuesday I’m looking at why this selloff feels so familiar and the two signs to watch for before calling a bottom.

Ok. Let’s get into it. ⬇️

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Gold and silver clawed back a good chunk of Friday’s losses on Monday. Gold climbed nearly two percent to finish around $3,950 an ounce, recovering from Friday’s slide to $3,870 - its lowest level in a year - while silver reclaimed the $50 line it lost last week, though the bounce looked unconvincing.

Friday’s damage wasn’t really about the metals at all: a sharp selloff in technology and AI stocks triggered margin calls, and investors sold whatever they could to raise cash, gold and silver included.

Monday’s recovery came courtesy of the oil market, where crude plunged more than seven percent after Washington and Tehran signaled openness to talks on ending the war, with a draft peace proposal circulating after three days of Qatar-mediated negotiations. Cheaper oil means less inflation pressure, which takes some of the sting out of the Fed’s tightening talk and lowers the cost of holding metals that don’t pay interest.

Attention now shifts to today’s US midterm elections and Friday’s jobs report, either of which could set the tone for the rest of the week.

Silver’s fallen nearly 60 percent from its January record, and the mood around it has turned just as sharply. At the top, the talk was all about supply shortages and a metal that just couldn’t stop climbing. Today you’ll find plenty of people calling the bull market dead.

Swings in sentiment like this usually turn up late in a correction rather than at the start of one. The case for silver is much the same as it was in January, but with the price cut by more than half, people are reading the same facts through a much darker lens.

We’ve seen a drop like this before

The closest match is 2008. Silver peaked at about $21 in March that year and bottomed out in late October and November, a fall of nearly 60 percent in roughly eight months.

This time silver topped out near $122 on January 29. Friday’s slide to just under $49 put it down nearly 60 percent about nine months later. Measured on daily closing prices, both drops come to 57 percent. They also took almost the same number of trading days to get there, running from late winter into the fall.

What followed 2008 is worth knowing. Within a year of the low, silver had roughly doubled, and by April 2011 it was above $48, more than five times the bottom. That’s no promise of a repeat, but it shows a 60 percent drop can happen inside a long bull market without ending it.

The calendar may help, too. Precious metals have often found buyers in late fall, heading into what’s historically been one of their stronger stretches, from December through February.

Silver has fallen much harder than gold

The gold-to-silver ratio tells you how many ounces of silver it takes to buy one ounce of gold. In late January it was about 46. Now it’s near 78, which means silver’s lost far more ground than gold.

In 2008 the ratio climbed to around 84 in early October, within weeks of silver’s low. When the ratio starts falling, silver is beating gold, and that’s usually one of the first things you see when a recovery gets going.

Fear is running high

Sentiment gauges have swung hard toward fear. Jeff Sarti told Kitco on Friday that the Daily Sentiment Index is “flashing very bearish,” and contrarians tend to treat a reading like that as a buy signal.

Gold also fell alongside stocks on Friday, settling just under $3,900. That happens when investors sell whatever they can to raise cash, and it happened in the fall of 2008 too.

Why the pressure hasn’t lifted yet

None of this means the bottom is in. Oil above $100 a barrel is keeping inflation worries alive, and markets now see roughly a 75 percent chance that the Federal Reserve raises interest rates in December. Higher rates make metals that pay no interest less appealing in the short run, and that won’t change this week.

Corrections this deep can also run further than seems sensible. That’s why I’d treat silver between $48 and $52, and gold just under $4,000, as levels to watch rather than floors anyone can promise.

Two signs the low is in

Rather than guess at the bottom, it makes more sense to let the market confirm it. I’m watching for two things.

The first is silver closing back above $55 and staying there for more than a day or two. That’s roughly where it broke down in late October, so getting back above it would show buyers are back in charge.

The second is the gold-to-silver ratio turning lower and heading back toward 70. That would show money flowing back into silver after weeks of flowing out.

What to do while you wait

If you’re adding to your stack, buy in stages rather than all at once. Spreading purchases over the coming weeks means one more washout works for you instead of against you.

Keep your position size at a level you’re comfortable with, too. Deep pullbacks after a big run are a normal part of long bull markets, and they’re much easier to sit through when a further dip wouldn’t force your hand.

The big picture

Silver’s drop now matches 2008 almost to the percentage point, and the gold-to-silver ratio is close to where it peaked back then. With sentiment this gloomy, the main thing still missing is the price turning higher. That could happen this week or after one more flush lower. Either way, this looks far more like the tail end of a correction than the start of a bear market, and it’s a much better place to be buying than it was back in January.

That’s all for this Tuesday, folks. I’ll see you on Thursday.

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Rick Adams
Founder, GoldBuzz
rick@goldbuzz.com