Over the last three months, it seems as if gold’s performance has received a disproportionate amount of media coverage over silver’s. It’s interesting to consider this for a moment, not only because it says a lot about how financial media works in terms of catering to the mainstream public, it’s interesting because silver had actually outperformed gold.
Gold came in second at 18% to silver’s 20% peak. And despite its tremendous rise, silver’s opening move may just be a mere prelude to what’s to come.
Many investors recently took notice, unaware that silver’s underlying trend--in terms of low prices and low supply conditions--had been rising since before silver had even bottomed-out in October 2018.
Partly due to the newfound interest in the yellow metal’s “minor” counterpart, inflows toward SILV (silver-backed ETF) have risen to levels unseen since 2012. Capitalizing on this renewed investor interest, a host of pundits and analysts have been publishing an increasing number of “technical analysis” articles over the last few weeks.
For instance, GoldMoney’s James Turk recently published an article stating how silver’s price action appears similar to the price setup right before the huge 1970’s silver bull market. He calls attention to the “flag formations” that are reminiscent of the price patterns that led up to the bull nearly half a century ago.
Plenty of other analysts have also been writing lots of technical articles on the matter--many of them written in a way that obfuscates the issue rather than inform the investor. When it comes to presenting technicals, a simpler approach is often better. So, here’s a simple chart illustrating a few critical points that we’ve identified.
SIlver COMEX Futures - Monthly Chart from 2005 to August 2019
As you can see, the time period on this chart precedes the last silver bull market (October 2008 to April 2011). The most recent price bottom appears in October 2018. But due to the chart’s large time scale, that bottoming appears as a mere blip on the bottom right. Here are a few things to note:
- The lower support trend line at  has been rising consistently.
- Silver broke out of its intermediate-term downtrend last month (July), as illustrated traced by the dotted red line at .
- Earlier this week, silver broke above its 2-year high, breaching the 18.00 level, as shown at .
You probably notice that the 2011 highs dwarf silver’s most recent climb, but that’s also the point. Silver is still very attractive at the current price level despite its 20% rise over the last three months.
Overall, the fundamentals and technicals point to a multiyear bull market in silver, similar to what we saw in the 1970s and 2009-2011.
On the short-term front, we are likely to see a pullback. So don’t be surprised when silver prices undergo a correction or consolidation. In fact, you should expect it
On the fundamental side of things, the COT (Commitment of Traders) report a few weeks back shows that commercials have closed out around 10,000 short positions as the price of silver increased by over $0.50. . We don’t see commercials adding to the net short positions in the near term; rather, we see the opposite. James Turk mentioned the coming options expiration week, anticipating a potential “short-squeeze” among silver short sellers.
Overall, the long-term outlook for silver looks exceedingly bullish. And as we recommended over the last year or so--as silver’s lowest levels had been creeping steadily upward--now is still an optimal time to accumulate the metal, particularly amid current US-China trade war uncertainties, increased market volatility, bond yields signaling recession, and the growing global trend toward negative interest rate adoption.
Not only is silver a safe haven asset to help diversify your portfolio, it still is, as mainstream investors tend to forget, a form of “sound money,” as with gold.
- Options expiration
- COT report
- Negative yields
- Investors sentiment
- JPM manipulation