Silver Is Finally Having Its Big Breakout
It's been 6 long years, but silver investors are finally seeing some return on their investment!
Market watchers have suggested that precious metals and commodities could be in for a rally as the global economy teetered on the brink of recession even before COVID-19 became a worldwide pandemic.
The spike in silver prices over the past several trading days has the look of a strong and sustainable move that could carry its price through the $25 level and maybe even towards $30.
Silver finished on Tuesday above $23, the first time it's been there since 2013. In the past 6 years, silver has mostly been stuck in a range between $15 and $20. Astute investors who picked up silver during the bear market low have to be smiling now as they've nearly doubled their original investment.
Earlier this year, I made the iShares Silver Trust ETF (SLV) one of my top 10 picks for 2020. I believed at the time that the global economy was slowing down, political tensions were running high and the fact that the Fed was willing to let inflation run hot for a while were all positive catalysts for precious metals, including gold.
Year-to-date, SLV is up 29%.
One of the reasons I prefer silver over gold right now is its relative value.
The silver/gold ratio has been falling steadily for nearly a decade. During the 2020 bear market, gold prices took off, while silver remained relatively flat. The best guess at the time for the lack of interest in silver was that it was a heavy industrial use metal and the slowdown in the manufacturing space was limiting demand.
But that just made the case for silver more compelling.
Just this week, the silver/gold ratio broke above an 8-year trendline and looks poised to continue this powerful move higher.
Today, all of the market signals are pointing towards a profitable 2nd half for silver and silver miners. Despite the rally in stocks, Treasuries yields haven't budged indicating a steady interest in the flight-to-quality trade. The COVID outbreak has begun depressing the value of the dollar too, a trend which I expect to continue throughout the remainder of 2020.
The oversupply of dollars in the economy (with more likely to come) will inevitably spike inflation rates. We're already seeing a lot of interest in TIPS in terms of ETF flows over the past two months. Treasuries and other risk-off assets are confirming a defensive posturing among investors. Silver and gold look like the assets that could potentially benefit the most from such an environment.
In my earlier year prediction, I said silver prices could push up to $25 by the end of 2020. At this point, that price still seems well within reach.
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