Silver Could Roar if Gold Continues to Make New Highs

Silver is a precious and industrial metal. For thousands of years, silver and gold have been means of exchange. While central banks own gold as an integral part of government’s foreign currency reserves, silver’s penchant for volatility diminished its role in the international financial system. However, silver prices continue to follow gold higher and lower, often yielding more significant percentage gains and losses than the precious yellow metal.

In March 2020, nearby COMEX gold futures fell to a $1,452.10 low as the global pandemic gripped markets across all asset classes. Five months later, gold had moved 42% higher to a record $2,063 per ounce. Over the same period, nearby COMEX silver futures rose 151.6% from $11.735 to $29.53 per ounce. While silver tends to turbocharge gold’s performance on the upside, it often far underperforms gold when the price declines. Silver can be gold on steroids. The recent price action in the gold market could lead to another significant rally in silver.

In 2020, gold and silver futures reached $1450.90 and $11.74 as the global pandemic gripped markets. In August 2020, gold rose 42.2% to $2,063, while silver’s rise to $29.915 was a 154.8% gain. When the gold and silver prices exploded higher, silvers’ was over triple gold’s on a percentage basis.

Gold reaches a new record high

• Active month COMEX February gold rose to $2,152.30 on December 4.
• Gold put in a bearish key reversal pattern on the daily chart on December 4.
• The continuous contract peak was at $2,130.20 per ounce.
• February gold settled at $2,036.30 on December 5.

Silver remains far below its record 1980 high

• Silver’s continuous contract high was in 1980 at $50.36 per ounce.
• In 2011, silver reached $49.82, where it ran out of upside steam.
• Silver has not traded over the $30 level since February 2021.
• Medium-term technical resistance for silver is at the April 2023 $26.235 high and the March 2022 $27.31 peak.
• Active month COMEX March silver settled at $24.546 on December 5.

The case for higher gold and silver prices

• Bonds are trending higher, and the dollar index is below the recent high. Lower interest rates and a weak dollar are historically bullish for precious metals prices.
• With wars in Ukraine and the Middle East and the bifurcation of the world’s nuclear powers, the geopolitical landscape creates uncertainty that favors gold and silver prices.
• Central banks have been net gold buyers for years, validating gold’s role in the worldwide financial system.
• Silver prices tend to follow gold on the up and downside.

A highly liquid silver ETF product

• The most direct route for a silver investment is the physical market for bars and coins.
• Silver futures provide a delivery mechanism for physical silver.
• At $22.12 per share, the iShares Silver Trust (SLV) had nearly $10.9 billion in assets under management and owns physical silver. SLV trades an average of over 16.94 million shares daily and charges a 0.50% management fee.
• SLV is a highly liquid ETF product, offering market participants an alternative to physical or futures markets.

Silver mining shares offer leverage and tend to outperform the metal on the upside

• Silver mining companies explore for and extract silver from the earth’s crust.
• The GX Silver Miners ETF (SIL) owns shares of senior silver mining companies. At $27.33 per share, the liquid ETF had over $946.3 million in assets under management. SIL trades an average of more than 480,000 shares daily and charges a 0.65% management fee.
• The ETFMG Prime Junior Silver Miners ETF (SILJ) owns shares of junior silver mining and exploration companies. At $9.59 per share, SILJ had over $691 million in assets under management. SILJ trades an average of more than 1.468 shares daily and charges a 0.69% management fee.
• Mining companies often outperform silver prices during rallies and underperform when silver declines.
• SIL and SILJ diversify idiosyncratic risk as they own a portfolio of silver mining companies.

Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!