On April 23, I posted an article on Barchart, posing, “How High Can Silver Rise?” In that piece, I explained that silver is money, the U.S. dollar is losing ground, silver industrial demand is growing, and the trend was positive. I concluded the piece with the following:
The ultimate silver target is the 1980 high at just over the $50 per ounce level. However, with gold heading to a new all-time peak, the prospects for silver are bullish. Bull markets can drive volatile commodities to illogical, irrational, and unreasonable prices on the upside. Silver’s supply and demand fundamentals, the overall trend over the past years, the decline of the dollar in the global financial system, and its penchant for volatility could mean the sky is the limit for the speculative precious metal.
Nearby COMEX July silver futures were at $25.28 per ounce on April 23 after reaching $26.235 on April 14, the highest price since March 2022. On May 4, after the latest rate hike, July silver futures were approaching the April 23 high.
Gold reaches a new peak
On May 4, nearby June COMEX gold futures reached a new record high at $2,085.40 per ounce, surpassing the previous March 2022 $2,072 peak on the continuous futures contract.
The chart highlights the move to record territory after the latest Fed meeting.
The Fed remains hawkish- The market does not believe the central bank
On May 3, the FOMC moved the short-term Fed Funds Rate to the 2023 target at a midpoint of 5.125%. The statement and press conference told markets that the central bank would be data-dependent on future rate increases, but it remains committed to pushing inflation to the 2% target rate. The tone of the press conference and statement remain hawkish, but markets doubt the Fed’s perseverance. Meanwhile, the dollar index is sitting near its most recent lows at the 101 level, and the long bond futures above the 132 level are significantly higher than the recent lows and have made higher lows and higher highs.
Gold and silver prices took off on the upside after the latest Fed meeting and 25 basis point rate hike.
Gold and silver are risk barometers
Markets reflect the economic and geopolitical landscapes. On the economic front, the U.S. faces a debt ceiling standoff, with the administration insisting on raising the ceiling with no restrictions, and Congress has demanded curbing spending. The potential of a debt default would cause significant market volatility as it would lower the U.S. credit rating. Moreover, recent bank failures are signs of cracks in the U.S. economy, which many economists believe is heading for a recession.
On the geopolitical front, the bifurcation of the world’s nuclear powers after China and Russia’s “no-limits” alliance is causing distortions in cross-border trade. China has been negotiating deals to pay for energy and other commodities with non-dollar assets and currencies, diminishing the dollar’s role in the global financial system and threatening the U.S. currency’s role as the world’s reserve foreign exchange instrument. Gold and silver are the oldest means of exchange and risk barometers. Gold’s rise tends to be bullish for silver, which moved over the $26 per ounce level on May 4.
Silver is more volatile than gold for three reasons
Three factors make silver more volatile than gold:
- Silver’s lower per-ounce price makes the metal more accessible for investors, traders, and speculators.
- Silver tends to outperform gold on rallies and underperform during corrections on a percentage basis, making it the precious metal of choice for trend-following market participants.
- Central banks validate gold’s role in the global financial system by holding gold as a reserve asset. Therefore, central banks can manipulate gold prices by buying or selling. Silver holdings are minimal, as central banks and governments view silver volatility as a detriment and have long abandoned silver reserves. Silver’s path of least resistance is a function of investment, speculative, and industrial demand.
The twenty-year gold chart highlights historical volatility at the 13.89% level.
The twenty-year silver chart illustrates silver historical price variance is just over twice gold’s.
If the bullish trend in gold continues, expect a herd of buying to descend on the silver market over the coming weeks and months, with the ultimate target at the $50 per ounce level or higher.
An update on the SIL and SILJ silver mining ETF products
In my April 23 Barchart article, I pointed out that the SIL and SILJ silver mining senior and junior ETF products were at the $30.31 and $10.99 per share levels. July silver futures rallied from $25.28 on April 21 to $26.315 on May 4, a 4.09% rise.
The chart shows the rise from $30.31 to $31.27 per share, or 3.2%, over the same period for SIL, the senior mining ETF product.
SILJ, the junior silver mining ETF rose from $10.99 to $11.40 per share or 3.7%. While silver has outperformed the SIL and SILJ ETFs since April 21, historical trading patterns suggest a continuation of the silver rally will turbocharge the ETFs that could exceed the metal on a percentage basis.
Silver has kept pace with gold, as the June contract rose 4.77% from $1,990.50 on April 21 to $2,085.40 on May 4, compared to a 4.09% rise in silver. Meanwhile, if the bullish price action keeps pushing prices higher, historical price action suggests that silver could outperform gold, and silver mining ETFs outperform silver on a percentage basis.
Silver could be on the verge of a bullish explosion. The critical technical resistance level is at $27.32 per ounce, the March 2022 high, which could be a gateway to the February 2022 $30.16 peak. Above there, the 1980 and 2011 highs around the $50 level are the ultimate target.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
