What Will Propel Silver Prices Over $18?

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Mike Hammer | October 8, 2019 10:19am NYSE:SLV

NYSE:SLV | News, Ratings, and Charts

Just a week ago your friendly Gold Enthusiast gave his “uncertainty zone” for silver prices. And this morning silver is perched just on top of that zone. So what is the key driver behind silver prices right now?

To put it bluntly, uncertainty. Uncertainty in 2 areas: strength of the US (and world) economy, and the US-China trade war.  This week the trade war is in focus so let’s look at that.

Investors are uncertain about the outcome of the US-China trade war, and they would love to position their portfolios to best take advantage of the most probable outcomes. But with China making a point of announcing they are sending their lead negotiator (interpret that as: hardest-to-make-a-deal-with), and limiting trade talks to non-policy topics, the uncertainty grows. Each side is now positioned as asking for what the other side explicitly doesn’t want to give.  That generally means little actual progress will be made, though there will be lots of harrumphing and posturing and talking about “progress”.

Which should translate in real-world-speak to: Many donuts were consumed, coffee was drunk, transcontinental flights were taken, with no substantive real-world result.

The question right now is how much of this is already baked into the price of precious metals. Silver enjoyed a nice short-term run-up thanks to everyone noticing it was historically cheap compared to gold. But if that was the only factor it shouldn’t have dropped back so much.

So to this Gold Enthusiast’s view, investors are concerned about the US-China trade war, but not overly concerned about it yet. There’s good evidence of a sector rotation in stocks to defend against a negative outcome, but there isn’t yet a full flight to precious metals. We probably have a while to wait for that – evidence suggests that investors will need to run out of places to flee to in stocks before we see significant new money flowing into precious metals.  Which likely won’t happen this week.


The Gold Enthusiast

DISCLAIMER: The author has no position in any mentioned security.  The author is long the silver sector via small positions in USLV, PAAS and SVBL. He may daytrade around these positions but has no intentions of trading out of these core positions in the next 72 hours.

The iShares Silver Trust (SLV) was trading at $16.59 per share on Tuesday morning, up $0.29 (+1.78%). Year-to-date, SLV has gained 3.75%, versus a 9.00% 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: Mike Hammer

Mike HammerFor 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading Group.

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