In a July 11 Barchart wrap-up on the precious metals sector price action in Q2 and beyond, I wrote:
Time will tell if silver’s break above a critical technical resistance level will power the metal significantly higher over the coming months. Silver’s upside target is the 1980 high at over $50 per ounce. The Q2 technical break suggests the bullish price action in silver will continue through the rest of 2024 and beyond.
COMEX silver futures prices rose 17.34% in Q2 and were 21.39% higher over the first six months of 2024, settling Q2 at $29.237 per ounce. Silver was lower in early September, but the consolidation period could give way to higher highs over the coming months.
A bullish trend in silver since the 2020 low
Nearby COMEX silver futures traded to a $11.64 low in March 2020 when the global pandemic gripped markets across all asset classes, which turned out to be a significant bottom.
The twenty-year silver chart highlights the pattern of higher lows and higher highs over the past four-plus years. Silver futures reached a $32.75 per ounce high in May 2024, the highest price since December 2012. The move above the February 2021 $30.35 peak was a technical breakout. Since the most recent high, silver pulled back and has consolidated its gains, trading on either side of the $30 level.
Gold’s ascent is a reason to buy silver
Silver rose to either side of the $50 per ounce level in 1980 and 2011. Long-term critical technical resistance stands at the 1980 record $50.36 peak. In 1980, gold’s high was $875 per ounce.
Gold and silver are related metals as both have industrial and financial applications. Gold and silver have been means of exchange and stores of value for thousands of years. After trading its significant bottom in 1999 at $252.50 per ounce, gold has made higher lows and higher highs, leading to a series of record peaks.
As the long-term chart of COMEX gold futures illustrates, gold reached its latest peak of $2,570.40 in August 2024, more than ten times the price at the 1999 low. Over the past twenty-five years, every correction in gold has been a buying opportunity. Gold and silver’s historical link suggest the bullish trend in silver will continue to take the second-leading precious metal higher.
Silver can be highly volatile, attracting speculative interest
Gold is a less volatile metal than silver.
The long-term chart shows that gold’s monthly historical volatility is at the 12.07% level.
Meanwhile, silver’s monthly historical volatility at 22.40% is nearly doubled gold’s price variance. Higher volatility from wider trading ranges tends to attract more speculative activity when a market breaks through a technical support or resistance level. Trend-following market participants increase trading and investing activity when significant trends develop. Silver’s break above the late 2012 high suggests an increased interest in the second-leading precious metal.
The fundamental reasons to buy silver on dips
Even though gold has been in a sustained bullish trend for a quarter of a century, downside corrections have been routine. Buying gold on these corrections has been the optimal trading and investing approach. Patient market participants buying gold on price dips have achieved the best results.
While silver’s long-term technical trend is bullish in early September 2024, the metal has fundamental wind in its sails. In April 2024, The Silver Institute, a trade organization, forecast that the global silver deficit would rise by 17% to 215.3 million ounces because of a 2% increase in demand caused by robust industrial consumption, while total supplies would decline by 1%. Philip Newman, Managing Director at consultancy Metals Focus, which produced the World Silver Survey for the Silver Institute, said:
The deficit in the silver market helps to provide robust support and a strong floor for the price. The deficit fell by 30% last year, but in absolute terms – at 184.3 million ounces – it was still eye-watering. Global supply has been broadly steady at around the 1-billion-ounce mark, while industrial demand did incredibly well with 11% growth. Identifiable silver inventories, as well as metal held off exchange, remain sizable. However, some of this silver may be tightly held, so it will be interesting to see, going forward, what impact ongoing deficits have on the market.
When fundamental supply and demand create a deficit, and the technical price trend is higher, it creates a compelling case for higher prices. Silver’s penchant for volatility means it could be a very bumpy and volatile ride to the upside.
SLV is a highly liquid silver ETF product
The iShares Silver Trust (SLV) is the most liquid silver ETF product. At $25.82 per share, SLV had over $13.2 billion in assets under management. SLV trades an average of nearly 15.35 million shares daily and charges a 0.50% management fee.
The most recent rally in December COMEX silver futures took the price 14.08% higher from $26.885 on August 8 to $30.6700 per ounce on August 26.
The chart shows that over the same period, SLV rose 13.24% from $24.25 to $27.46 per share. One of SLV’s drawbacks is that silver trades around the clock while the ETF is only available during U.S. stock market hours. SLV’s price will not reflect highs or lows when the stock market is closed.
If gold’s ascent is a clue, silver could be pausing and digesting its May technical breakout before an explosive move. Fundamental and technical analysis suggests that higher silver prices are on the horizon.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
