Silver: Setting the Stage for a Breakout?
It looks like the patience of silver investors might finally be rewarded, as the metal’s price appears to be gathering momentum in recent weeks. The silver price plummeted to $13/oz in early 2016, a long way down from its peak at $50/oz in 2011. It has since been stuck in a low-price range, most recently around the lower end of $14/oz-$16/oz, and refused to move even in the face of increasingly supportive market conditions and favorable geopolitical factors.
However, it recently showed strong signs of life, making investors question whether gold's little brother is finally set for a long overdue breakout. Since bottoming in late May, silver has rallied by 7.3% in just three weeks. In June, silver flew by the $15 mark before seeing some pushback and settling around $15.40.
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A positive outlook is well supported from a technical and fundamental perspective, while external forces and recent developments on the monetary policy front also seem to have set the stage for a comeback of the metal. Gold prices have shot up over the last month, and even though silver is known to lag gold, it is still a positive omen.
Another important factor is the Federal Reserve’s monetary policy reversal that fueled equity investors’ hopes of upcoming rate cuts, as is European Central Bank’s dovish stance, which has renewed expectations for a return to quantitative easing. Geopolitical tensions also make a convincing case for continued strength in precious metals in general, as the US-Iran standoff adds to the uncertainty that’s already heightened by the trade war with China.
A key indicator, the gold-to-silver ratio, or the amount of silver that can be bought with one ounce of gold, is highlighting the current buying opportunity. The ratio has averaged around 58 since gold was unpegged from the Dollar in 1971 and has been known to spike before a significant upwards move in silver prices. At the time of writing, the ratio stands over 91, its highest level since 1993 and near its all-time high readings, close to 100.
The long-term price outlook for silver appears positive and solid gains can be expected if the current monetary and geopolitical environment persists, and in the increasingly likely event of a widespread economic recession or extensive market correction. In the short- and midterm, silver could continue its rise to the $16 mark, where it is bound to face resistance. Once this hurdle is overcome, however, the positive scenario should be decisively reinforced.
Overall, silver is still extremely cheap and as Ronald Stöferle earlier highlighted in the interview, it has the potential for extraordinary gains. Given the significant upside and the factors that support it, the metal could offer one of the best investment opportunities available at this moment.
At the current price levels, the cost of participation in an upcoming rally can be a rare bargain.