Silver is finally showing some signs of life after suffering a dark year. The epically-bearish sentiment that bludgeoned this metal to major secular lows is cracking, with a strong rebound rally now underway. And this recent buying is likely just the earliest vanguard, as silver remains deeply undervalued relative to its primary driver gold. Silver will need an utterly massive upleg to fully mean revert to normal levels.
Silver has been out of favor for a long time, the last few years. And 2015 didn’t give beleaguered silver investors much hope. By late August, July’s extreme gold-futures shorting attack had dragged silver down to a major 6.0-year secular low. Down 9.9% year-to-date at that dark nadir, silver was left for dead by traders. The despair was real, as it certainly felt like silver was doomed to keep grinding lower forever.
Silver’s slumber was certainly vexing, but this metal was way overdue for a rebound rally as I predicted at the time. And indeed that’s come to pass. Since silver’s dismal lows in late August, this metal has surged 14.4% at best. Fully 4/5ths of these impressive gains came in the first two weeks of October alone. This strong rally blasted silver above its 50-day moving average to challenge its critical 200dma.
With silver awakening again, investors and speculators need to ask themselves two key questions. What fueled silver’s sharp gains this month? And will that driving force continue pushing silver higher? The quick answers are gold and yes. Silver looks super-bullish today because its price levels relative to gold are exceedingly low. Silver is going to have to power dramatically higher to restore this relationship to normal.
For all silver’s unique investment and industrial merits, history has proven it is ultimately just a leveraged play on gold. Silver prices’ long-term correlationwith gold prices is incredibly high. This is because gold is what gets traders interested in the entire precious-metals complex. Silver is ignored until gold starts moving, then once it does capital floods back into silver to try and catch one of its wealth-multiplying uplegs.
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