While gold is currently up just 1% for Q3, silver has launched itself 5% and has hopped back above its key weekly moving averages (40-week and 100-week). The significant underperformance for silver vs. gold at the 2001-2003 bottom only ended when silver put up a quarterly performance nearly double that of gold’s return, and we’re currently on track for this as head into the last two-thirds of the third quarter. There are no guarantees that the performance for the first month of the quarter will match the back two, but silver bulls can rejoice in the fact that the signal they’ve been waiting for might finally be showing up.
The Federal Reserve’s decision to lighten up on their low inflation mandate and entertain rate cuts did not seem to be giving any life to silver, despite the fact that it had helped to launch gold through five-year resistance at $1,365/oz. Finally, it looks like silver has got the memo and has woken up from its slumber with a vengeance. The 100-week moving average for silver which came in around the $15.75/oz level has been a ceiling on the metal for most of 2019, but silver is now back above it by a couple of percent thus far. The key for the bulls going forward is for pullbacks to be shallow in silver, as this would increase the probabilities that this is a real rally. There’s no doubting the bulls have certainly made some significant headway this week, but the real decisive test lies just overhead at $16.25/oz. This area kept a lid on silver for the first half of the year and also represented the area which silver broke down from in mid-2018. These prior support levels are crucial areas as typically those who bought support will sell their positions back at break-even after previously holding a substantial loss. The reason for this is that it would suggest that those who bought at $16.25/oz have been washed out at the lows, or that they are less eager to get rid of their positions. Essentially, it would tell us that stronger hands are now holding the metal. Therefore, if silver can take out $16.25/oz on a weekly close, the bulls will finally be in control of the majority of time-frames.
While this significant bout of out-performance vs. gold is beginning to tilt the scales for a silver breakout at some point in Q3, bullish sentiment has gotten a little ahead of itself short-term. Daily Sentiment Index Data currently sits at 89% bulls for silver, and this means that as of yesterday’s close, there were 8.9 bulls for every one bear in silver when surveyed. This is not a huge issue medium-term (3-6 months), but short-term it could provide the catalyst for a small pullback. What the bulls are going to want to see is any pullbacks contained to 5% or less, and ideally that they hold above the $15.15 level for silver on a weekly close. A weekly close below $15.15 would make this rally look much more suspect. For now, the below 2-hour chart shows just how far things have swung in silver’s favor as it has gone up in a straight line to start July with gold just marking time.
For investors looking for silver miners to compliment their portfolio, the two leaders among the group are Silvercrest Metals (SILV), and Wheaton Precious Metals (WPM). These were the first two names to head to 52-week highs, and they have shown they do not need the price of silver to appreciate in value. While the two names are overbought short-term and are not near ideal buy-points, I would consider any 10% dips in these stocks from their highs to be opportunities to start positions.
About the Author
Taylor Dart has over 10 years of experience in active & passive investing specializing in mid-cap growth stocks, as well as the precious metals sector. He has been writing on Seeking Alpha for four years, and managing his own portfolios since 2008. His main focus is on growth stocks outperforming the market and their peers. In addition to looking at the fundamentals, he uses different timing models for industry groups, and scans upwards of 2000 stocks daily to identify the best fundamental opportunities with the timeliest technical setups. Taylor is a huge proponent of Trend Following and the “Turtles” who enjoyed compound annual growth rates of over 50 percent per year.
The iShares Silver Trust (SLV) was trading at $15.13 per share on Thursday afternoon, up $0.19 (+1.27%). Year-to-date, SLV has declined -5.38%, versus a 11.98% rise in the benchmark S&P 500 index during the same period.
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