Once we know the current situation in the general stock market, let’s see how it may translate into the precious metals market. Let’s take a look at the Correlation Matrix.
The Correlation Matrix is a tool, which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector (namely: gold correlations and silver correlations).
What’s very interesting is that the correlation between silver and the stock market is strongly negative. It’s negative in the short and medium term. This is so interesting because, theoretically, silver used to be positively correlated with the stock market most of the time, which you can see in the very long-term, 1500-day column. This was because of silver’s industrial uses. With the bullish outlook for the stock market suggesting higher values, it seems that the outlook for silver is quite negative for short and medium term.
It seems that we will need to see silver moving higher regardless of what the stock market is doing before we can say that another huge upleg is in the cards for the white metal.
Summing up, the outlook for the general stock market is very bullish in the medium term and more bullish than not in the short term. As we previously mentioned, the S&P 500 Index reached one of the rising support lines and even if stocks drop below it the next one may stop a correction. Therefore, the downside seems limited. Another bullish factor is the RSI indicator based on the DIA ETF, which moved below the 30 level.
Even though the very long-term correlation between silver and the general stock market is positive, it seems that the above has negative implications for the white metal for the short and medium term (even though based on past price patterns, we could see some short-term strenght in silver).