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Since silver hit a low of $13.63 on the 14th December
last year, it has been generally up for silver with some predictably wild
turns on the way. As of today, silver has risen as high as 25% while its big
brother, gold, has seen a parallel rise of 23% to its recent high on March
11th. Since then, silver has been making up lost ground on gold to now
slightly outperform gold.
But that is why investors buy silver, is it not? It is a
leveraged play on gold without some of the risks of holding indirect
instruments such as derivatives or mining companies. When this nascent bull
market finally ends years from now, expect silver to return double the
performance of gold.
However, the tantalizing pointers to a confirmed bull
market rather than a hyped one are slowly coming into place. I have talked
about how the gold to silver ratio can help in that regard in a previous
article, but another one concerns the silver price itself. Take a look
at the semi-log monthly chart of silver in relation to its 20-month moving
average.
(Click on images to enlarge)
As you can see, the history of silver bears and bulls since 2001 has been
a battle with this moving average. When silver completed a whole month’s
trading range above the moving average, a multi-year bull ensued. Likewise,
when silver completed a whole month’s trading range below this moving
average, a multi-year bear market ensued.
Currently, silver is battling to get above the 20-month moving average, so
from this point of view, a new bull won’t be confirmed until at least next
month. However, the same chart for gold, which follows the same principle,
broke completely above its 20-month moving average in March. As I said, it’s
all slowly coming together.
The one fly in the ointment is the Elliott wave counts, since no clean
impulse wave is visible in silver’s recent run. Does this mean this silver
bull is about to be strangled at birth? Not quite, as I am not so sure a
clean impulse wave can be clearly demonstrated when silver began its long
bull run back in 2001. I take that to mean that Elliott Wave is neutral on
this matter.
After all, it is not always the case that bull markets come racing out of
their blocks like thoroughbred racehorses. Sometimes, they begin cautiously
as the bullish-bearish consensus pulls the metals backwards and forwards
until a clear winner comes forth.
What about silver mining stocks? No one could have failed to have noticed
the rip roaring run of precious metals mining equities recently. In fact, the
benchmark Global X Silver Miners ETF (SIL), is currently out leveraging
silver by a factor of six to one!
That would suggest a sizeable pullback is due soon, though a rough and
ready chart showing the ratio of the silver and SIL price reveals that,
though it is high at 1.9, it has been higher. That ratio is shown in blue
with silver in green. Note the ratio has been higher even during this five-year
bear market. It was at its highest back in December 2010 at 2.7. However,
caution is urged at this stage.
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