Silver on Pace to Join Gold in a New Bull Market
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
While gold and the GDX are both rapidly approaching their technical targets discussed in this column a few weeks ago, silver is beginning to catch up. During the tail end of the last gold bull run nearly a decade ago, the $1550 level was strong support for nearly two years. Once this critical support zone was broken in early 2013, a vicious bear market in all things precious wreaked havoc in resource speculators portfolios for the better part of six years.
Since the move in silver was more pronounced than gold on the upside during the last decade, the bear market in the metal since then has been a much more maddening experience for investors who have attempted to get ahead of a major bottom in this tiny sector. If you look at the silver price action over the past three years, it's been a slow and frustrating ride down that has been held in check by its sinking 50-month moving average.
From July 2016 through June 2019, the price of silver did nothing but make lower highs and lower lows below this strong line of defense. The continued bearish action drove most investors into more fashionable high-risk speculations such as cannabis and crypto’s, while leaving silver far behind.
However, after reaching a bottom at $13.86 last November, the price recovered to $16.20 at the start of 2019. A move to a higher low at $14.25 in late May led to the rally that broke the bearish price pattern that had been in place since 2016. Silver finally broke the pattern of lower highs when it rose above the $16.20 level during the week of July 15th to a new peak for the year.
Moreover, last month marked the first close over silver’s 50-month moving average since the bear market began in early 2013. Many investors are also still disappointed from February's run-up and collapse, which is why most speculators might have been overlooking the metal until gold began to build a floor above $1400 last month.
Then earlier this week, silver broke out of a two-week, sideways consolidation pattern, rising over 4.5% on Wednesday and closed above the $17 level for the first time in over a year. The 200-day moving average is now trending higher and volume has exploded compared to the start of the year. And the 50-day moving average has made a “bullish cross” over the aforementioned closely followed technical line to the upside as well.
Furthermore, the relative strength index (RSI) and moving average convergence divergence (MACD) momentum indicators are both continuing to trend upwards, which was not the case in January and February. These bullish manifestations help to confirm silver's motion upward and suggest it can continue to trend higher with gold into a new bull market.
Silver equities have predicted this move in the metal, by beginning to move higher with gold and its miners in late May. The Global X Silver Miners ETF (SIL) has outperformed silver itself since then also. This is a very bullish indication that the metal stands a good chance of a monthly basis close above $17.50 on August 30th that would signal silver technically joining gold in a new bull market.
From a risk-reward perspective, the upside in silver could turn out to be even more dramatic as the metal is still lagging gold by a large margin. The long-term average of the silver-gold ratio is around the 55 ounces of silver value, to each ounce of gold value. On August 8th, the relationship stood at just over 89:1 and a return to the historical average of 55:1 would put the price of silver at over $28 per ounce with gold at $1550.
Although I do not assume this will happen right away, the continued out-performance of the silver equities would be a very good sign of silver possibly beginning to outperform gold once there is a sustained correction in the yellow metal, which I expect may begin once December Gold reaches the $1550 region.
In the silver complex, the best leverage to the metal often comes from the more speculative small-cap producers, developer/explorers, and early stage micro-cap exploration juniors. I have been painstakingly researching and accumulating the best in breed developer/explorers and early stage micro-cap juniors for the past three years, in anticipation of the recent breakout in the precious metals complex. If you would like to receive my research, newsletter, portfolio, and trade alerts, please click here for instant access.
On a personal note, I was very saddened to hear about the terrible plane crash in Yukon this week that took the lives of ATAC Resources VP Exploration Julia Lane and Alkan Air pilot Shawn Thomas Kitchen. I first met Julia on a site visit of ATAC Resources Rackla Gold Project in 2017. She was a very bright geologist and a wonderful person with a real zest for her work on this highly prospective project. This is a tragic loss for my colleagues in Yukon and the families of both Julia Lane and Shawn Thomas Kitchen. My condolences and deepest sympathies go out to every person who knew and loved them both.