With gold hitting another historic high Monday, I thought it might be worth taking a closer look at another precious metal on the move and one that's at a fresh thirty-year trading high: silver.
Specifically, do the charts and the basic fundamentals support the idea that silver is set to continue its recent rally? And perhaps more tantalizing, is there any evidence that points to the idea that silver can take out its more than thirty-year-old record high of roughly $50 per ounce?
First, silver’s chart speaks very well to a continuation of its uptrend since it appears to be fulfilling an auspicious Ascending Triangle that carries a target of $31. A fully detailed version of this pattern with its trendlines can be found here.
In addition, now that silver is above $30 per ounce, stability is likely to be brought to this chart and this supportive aspect will increase the longer silver stays at/around/above $30 per ounce.
Second, and somewhere between the technical and the fundamental is the gold/silver ratio or the number of silver ounces it takes to buy a single ounce of gold. Specifically, it is very close to hitting a decade-long area of support found around 45/1 and this suggests that silver will trend higher yet.
More exciting, however, is the fact that if this ratio moves below 45/1, there is reason to believe that it will be on its way to its long-term historic ratio of 16/1. Such a move down bodes extremely well for the price of silver and even supports the idea that silver will trade to that $50 per ounce or higher.
Third, silver’s fundamentals support a continued move higher in the precious metal.
Benefits from a Continued Bull Market in Precious Metals – The 10-year charts of both gold and silver (not shown) slope up and to the right and demonstrate that there has been a bull market in precious metals as demand has overpowered supply for at least the last decade.
Rebirth of Silver Industrial Demand – Silver’s biggest end-use sectors are electrical and electronics and then jewelry and silverware. All such sectors were hit by the recession and there is good evidence pointing to fact that industrial demand for silver is on the rise.
Rising Investment Demand due to ETFs – Until the advent of silver exchange-traded funds in 2006, investors had to purchase silver from a bullion desk or jeweler or trade in the futures market. Now, however, these physical metal-backed ETFs offer investors a liquid way to invest in silver as a safe haven hedge against other riskier assets.
Offers Purchasing Power Against Paper Currencies– As the “poor man’s gold”, silver offers some protection against potential inflation, and even deflation, as a physical and transferrable store of value that should retain intrinsic value as investors become increasingly uneasy about the longevity of paper currencies that are chained to unsustainable sovereign debt loads.
And lastly, will silver break its $50 peak? While the charts combined with the fundamentals may say, yes, it is not as certain an answer as that provided by Jeffrey Nichols of American Precious Metals Advisors.
In a recent article in a numismatic journal, he wrote:
Based on silver’s own improving supply/demand fundamentals, I expect higher silver prices in the months and years ahead. Consistent with my forecast of $2,000 gold in the next few years, I expect silver to hit and surpass its 1980 all-time peak around $50 an ounce.
And so, it seems those in the know on the subject think it is possible that silver will take out its record-high and this could very well make silver the next gold.
Disclosure: I am Long SLV.