Is Silver Going To Break Out On The Upside?
(April 23, 2024 - Andrew Hecht, Barchart)
In a Barchart article on silver dated April 1, I drew attention to the falling silver-gold ratio, a bullish signal for silver, known for its volatility and speculative nature among precious metals. I stated:
The silver-gold ratio is trading at an elevated level on April 1, which is a mixed blessing. On the one hand, the metric tells us that silver continues to underperform gold. However, the high level could create a significant opportunity if silver is heading for an upside break that could take the volatile metal substantially higher over the coming months. I favor the upside for silver and believe each price correction is a buying opportunity.
The ratio was near 90:1 on April 1 and declined to below 83:1 at the most recent low, reflecting silver’s outperformance compared to gold over the past weeks. Meanwhile, on April 1, nearby May COMEX silver futures were trading at $25.075 per ounce. Since then, the May contract rose 19.3% to a $29.905 high on April 12 before correcting.
Silver rallies and comes to life
While gold rallied over 7% in Q1 2024 and silver was up 3.45%, early Q2 has been another story as silver has taken the leadership baton. At the latest $2,448.80 high on April 12, June gold futures moved 9.4% higher than at the end of March, while May silver futures reached $29.905 per ounce, a 20% increase from the Q1 closing level.
Approaching the first technical resistance level at the February 2021 high
A gateway to the 2011 and 1980 peaks
The long-term chart highlights that a move above the February 2021 high could be a technical gateway to much higher silver prices.
The long-term chart, dating back to the early 1970s, shows technical resistance at the 2011 $49.52 high and the record 1980 $50.36 peak. A move above the 2021 high could ignite a parabolic rally in the silver futures market as trend-following traders, speculators, and investors buy silver with expectations of much higher prices.
The factors supporting silver
The factors supporting a significant rally in the silver futures market are:
- A break over the 2021 high would be a very bullish technical signal, as silver is a highly speculative metal.
- Silver demand has been rising. The Silver Institute, a trade organization, forecasts that silver demand will increase to 1.2 billion ounces in 2024 on “continued strength of industrial end-uses and a recovery in jewelry and silverware demand.” The Institute expects global silver supply to increase by 3% in 2024 to an eight-year high of 1.02 billion ounces. The bottom line is a deficit in silver fundamentals.
- Gold is trading in record territory, and silver tends to move in the same direction.
- In a sign of increasing investor interest, Costco Wholesale is now offering member customers silver coins.
Even the most aggressive bull markets rarely move in straight lines; pullbacks and corrections are likely. However, silver has the fundamental wind behind its bullish sails, and a break above the February 2021 high would put a technical gust into those sails, which could trigger a significant upside move.
SLV is the leading silver ETF product that tracks the metal’s price
The most direct route for a silver investment is the physical market for bars and coins. However, a 1,000-ounce bar worth just under $30,000 weighs about seventy pounds. Therefore, silver is bulky and challenging to store.
