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Silver Lining Turning Forth

May 03, 2021 6:07 AM ETiShares Silver Trust ETF (SLV), GLD
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  • The up-cycle has already started for silver (as well as gold), and key levels are being tested.
  • The short-term trends in silver have converged to a point of acute stretch on the low side.
  • The stage is set for a good play of risk vs reward, with high statistical probability of gains over the next 2-3 years.
Seagull flying towards the setting sun
Photo by danefromspain/iStock via Getty Images

The price of the metal silver is at a key juncture. If it is to hold on to its chartered territory, right now is the level around which it should find a bottom.

The chart below shows the recent trends in silver, till the end of March 2021. The blue graph shows the 2-year trend, and the orange graph shows the trend that started after the last major low in March 2020.

The green dotted line is the bottom trendline over the last 2-year period, and the red dotted line is the bottom trendline since the last big low point. These trendlines are the lower bound of the statistical bands which carry high probability of prices oscillating between them.

Both these lines are converging right now, at the current price. Now is the low on both trends simultaneously.

If these trends are to hold, this would be a likely level for silver to find its bottom and gradually turn upwards.

Two Brothers Playing Together

No discussion on silver is complete without talking about its big brother – gold.

We look below at the longer-term trends in gold (in orange) and silver (in blue), over the last 15 years, till the end of March 2021. The starting level for both is normalized at 10, to capture the effect of their relative movement against each other.

The dotted lines in red are the low trendlines, while the green one is a high trendline. Two periods are highlighted in grey; the recent one and the second half of the year 2009.

These two periods look strikingly similar in their price behavior; prior to and during those shaded areas, and expectedly afterwards.

Key things to note:

  1. Prior to both these periods, gold and silver hit major lows. During such episodes of crash, silver usually falls more than gold.
  2. During both those periods, the recovery was well underway. The prices were testing the respective trendlines in red. In such recoveries, gold usually starts the uptrend earlier.
  3. Eventually gold and silver prices hit major highs at or above the green trendline. The later part of the recovery usually sees silver rising much faster than gold.

From where we stand today, there is high statistical probability that both gold and silver may find their way up to the green line, over the next 2-3 years.

If that move happens, keeping the statistical ranges in play, we could see:

  • Gold prices rise by +50%.
  • Silver prices rise by +100%.

Metals move up and down in long cycles. This cycle’s bottom for both these metals is likely in.

The up-cycle has already started. Key levels are being tested. The short-term trends have converged to a point of acute stretch on the low side.

The stage is set for a good play of risk vs reward. Now is the time to get in the groove with the market, and follow its dance.

Analyst's Disclosure: I am/we are long SLV, GLD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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