What Silver (SLV) Needs Most

| January 15, 2020

silverNow that the impact of the US-Iran situation is apparently absorbed by the financial community, we can look at its effects on silver and see if they tell us anything.

And they sure do.  Here’s a very simple 3-month chart of SLV, the unleveraged US silver ETF that trades on US markets.

silver

(credit Fidelity.com)

If we look at the relationship between the US Dollar index UUP (blue line) and SLV (the candlesticks), we can see that most of the time they trade in “good inverse relation” to each other.  Meaning over 2 or 3 days, a move in one is mirrored by an opposite move by the other.  Sure, there are single days where both go up, or both go down.  But in general, they follow the common rule of precious metals trading inversely to the local currency.

Which makes sense, because no matter what the currency does, an ounce of metal is still an ounce of metal, and whatever intrinsic value it had before it still has.  Barring any new discovery in physics or materials science, of course.

Which brings us to “the big problem” with silver: Why isn’t it higher?  Haven’t silver bulls been telling us for over a year now that the gold-silver ratio is too high?  And hasn’t basic silver demand grown significantly over the past few decades with increased electronics manufacturing?

If those two things were indeed the major drivers of silver prices, silver prices should be at least twice what they are now, just to get us back to parity with the 1970s or 1980s.  But, since we’re not there, obviously other things are happening.

What this chart shows quite plainly is that silver still reacts to changes in local currency value, in our case the US Dollar.  So if we want to see higher silver prices in the short term, we need to look for a lower US Dollar.

Could it be that simple?

Signed,

The Gold Enthusiast

DISCLAIMER: The author holds no position in any mentioned security.  The author is long the silver sector via a small position in USLV.  He may daytrade around this position but has no intention of trading out of this core position in the next 48 hours.

Note: This article originally appeared at The Gold Enthusiast.

 

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Category: Commodities

About the Author ()

Mike Hammer has had a wide-ranging career, with trading and investing as a continuing theme. Mike graduated from UC Berkeley with a business degree, then worked with Macy's in their operations arm. He left Macy's and spent a summer trading his own account, which taught him a lot about trading in general and markets in particular. Trading through the Black Monday and the Crash of 1987 showed him how most people are unprepared for upheavals in their trading. He then joined Waddell & Reed as a financial advisor, helping regular people understand their finances and meet their life goals. Then came the usual story - Mike met and married the lady of his dreams. They moved to upstate New York, where Mike worked first for a small manufacturing consulting company, then Cornell University. While loving the work and the higher-education atmosphere, Mike missed the world of finance. Eventually, he signed up for stock trading coaching with the Adam Mesh Trading Group, to learn from people who understood modern markets. Within a year, Adam asked Mike to become a stock trading coach. Since then, Mike has trained over 200 individuals, spoke at several national conventions, and is a frequent contributor to conference calls across the Adam Mesh community. Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keep him in touch with "the student mindset". Mike closely follows the gold, energy, and financial sectors. His motto is "Plan your trade, then trade your plan!"

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