…[Silver] should stabilize, consolidate, and proceed to move higher from here…[given the current]….trend in gold prices, the gold-to-silver ratio, the Fed’s easy monetary stance, the COT report, and silver’s technical image…Therefore, this appears to be an excellent time to accumulate shares in SLV*, as this ETF is likely to be worth substantially more down the line.
*(SLV is an exchange-traded fund that is designed to give investors a cost-efficient way to gain access to the silver market without having to buy silver futures or the physical metal. The SLV ETF fund is engineered to mimic the spot price of silver. Since SLV is physically backed by silver and mimics the commodity’s price almost identically, I will refer to SLV and silver interchangeably throughout this article.)
The 4 factors are:
1. The Trend is Bullish for Gold Prices
- …Gold and silver typically rise and fall largely in tandem, but since gold is the dominant metal, silver prices essentially follow gold’s.
- …Gold has been in an uptrend (making higher lows) since late 2015…[but] has not made a higher high since 2016, which implies a longer-term breakout or a breakdown is approaching.
- …Gold is approaching a key support level at $1,280, is likely to consolidate around this level, then rebound, and proceed higher…
2. The Fed’s Stance is Bullish for SLV
- …Ever since the Fed started to become less hawkish on rates last fall, gold began to appreciate, and is likely to continue higher as the Fed winds down its tightening program [and this factor is likely to drive SLV prices higher going forward
- …The market is giving about a 12% chance rates will be lower 1 year from now, a move that would be particularly bullish for SLV.
- When rates are low, gold and silver make for attractive investment vehicles relative to low yielding bonds that may be delivering lower yields than the level of inflation.
- Also, when the Fed’s monetary policy is dovish, or loose, the dollar typically declines, which also serves to benefit gold and silver prices.
3. The Gold-to-Silver Ratio is Bullish for Silver
- The gold-to-silver ratio is at 85 right now, an extremely elevated level typically associated with notably depressed gold and silver prices. As silver outperforms gold in upside markets the ratio of how much silver you can buy in relation to gold decreases. In prior gold and silver bull market tops the gold-to-silver ratio has bottomed out at around 30-50…
4. COT Suggests More Upside
- The COT report illustrates that silver just went through its most bearish period sentiment-wise in at least 10 years…
- Sentiment readings are typically incredibly good counter indicators, especially in commodity markets. Thus, after such a prolonged period of extreme bearishness a robust bull market phase is likely to follow.
The Bottom Line
…SLV is trading at an attractive level, and appears to have entered a new uptrend towards the end of last year. Therefore, the recent correction appears to be a positive technical development which should allow market participants to enter SLV at an appealing point around current levels…