Should Investors Buy Silver Under $16?

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March 12, 2020 1:15pm NYSE:GLD NYSE:IAU

NYSE:GLD | News, Ratings, and Charts

It’s been the most volatile week since the Great Financial Crisis for the markets, and those hiding out in silver (SLV) certainly have not been spared. The metal is now down 13% year-to-date, despite a positive year-to-date return in gold (GLD), and the metal is currently trading below its key 20-month moving average. Unfortunately, despite this development, we still don’t have any significant amount of fear in the bull camp for silver, with an even divide between bulls and bears for sentiment as of Wednesday’s close. This suggests that we could see further on the downside before this is over, as panics like this usually end in capitulation, not the relatively subdued amount of fear we see currently. Based on this, I see no reason to rush in and buy the dip here, and I continue to favor gold, the stronger of the two metals.

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(Source: Daily Sentiment Index Data, Author’s Chart)

While we’ve seen quite a bit of panic in other markets with bullish sentiment below 10% on the S&P-500 (SPY), the bulls continue to remain resilient in the silver trade and unwilling to throw in the towel. As the chart above shows, silver sentiment finished on Wednesday at 48% bulls, one of the highest readings among all asset classes currently. This is a worrisome reading considering we see a significant amount of selling in the metal, but it’s not translating to a ton of fear. The first sign that the silver bulls are finally getting panicky would be a reading of 20% or lower on this indicator, roughly 2800 basis points before where we sit currently. Therefore, based on this indicator, we still have significant room lower unless the bulls finally decide to capitulate today.

If we move over to the technical picture, we can see that silver continues to trade in a multi-year base here, and has been unable to break out above its 2014 highs as gold did. Worse, the metal is currently trading beneath its 20-month moving average (teal line), a level that it has been successfully defending for months following gold’s breakout. This is a little bit concerning as the bulls typically showing up in a big way at this critical moving average and play strong defense here. Based on this, the key for the bulls will be playing defense at the $15.00 level on the SLV at the March close. A close above this 20-month moving average would require a 5% rally to finish the month that sticks, in a time where we’re seeing uncertainty across global markets and the baby being thrown out with the bathwater in most sectors.

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As noted, the one concern currently for silver is that we don’t have enough fear to give high probabilities of a bottom. The other concern is that we have silver trading back below its 20-month moving average, a level that the bulls should be defending in a big way on every test. Based on this, investors should be careful getting aggressive here in silver and silver miners until we see some real fear in the metal. For this reason, I continue to favor gold over silver and have zero interest in jumping at this moment. As long as the bulls can defend $15.00 on SLV, the bulls will remain in control. However, a monthly close below $15.00 would be a bearish development and would suggest the first change of character in several months in an asset class that is supposed to be a safe haven.

The iShares Silver Trust (SLV) was trading at $14.80 per share on Thursday afternoon, down $0.83 (-5.31%). Year-to-date, SLV has declined -7.44%, versus a -4.27% rise in the benchmark S&P 500 index during the same period.

SLV currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #9 of 33 ETFs in the Precious Metals ETFs category.

About the Author: Taylor Dart

taylor-dartTaylor 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.

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