Technical analyst Clive Maund discusses why he believes silver is amazingly cheap and a sure sign that a major precious metals sector bull market is starting.
We have already been over the reasons why a major precious metals (PM) sector bull market is starting, and remarked on how undervalued silver is compared to gold, and how this is typical at the start of a major sector bull market. But it is worth "thumping the table" over this, because silver and silver investments may well be the best place of all to put your money at this time.
Many silver investors are manic-depressive and fanatical, which is a reality that we can turn to our advantage, for if we can figure when they are just starting to emerge from the depths of despair, it is the time to move into the sector in a big way.
They are just starting to emerge from the depths of despair right now as it happens, which is shown graphically by the silver-to-gold ratio, the basis of which is that when investors in the sector are at their most risk-averse, they tend to favor gold over silver. This is hardly surprising, as gold conjures up images of solidity and security to a much greater extent than silver, which is also known as "poor man's gold."
It is thus most illuminating to observe a long-term 20-year chart of the silver-to-gold ratio. Here we see that the rare occasions where it has dropped to the extremely low levels it is now at have always preceded a major sector bull market, except early in 2016, which preceded a big rally. What is remarkable right now is that this ratio has even exceeded its earlier record lows, which makes a new sector bull market even more likely. This indicator, just by itself, is a strong sign that this is what's brewing.
Now to examine silver's latest charts to see how it is shaping up.
On the six-month chart we can see that although silver has reversed, breaking out of its preceding downtrend into a new uptrend, it has still only risen by a meager $1 from its late May lows—big deal!! Rather than being upset by this, we should be thankful that it hasn't risen more, because otherwise silver investments would have gone through the roof. Silver's restrained performance so far is giving us more time to buy investments across the sector before it really gets moving. An important point to note before leaving this chart is the strong volume on a big up-day last week, which was the second biggest up-day volume in history, which is a very bullish sign.
The three-year chart shows that silver has been an especially dull market during this period. But what is interesting is to compare this chart to the three-year chart for gold in the article Gold's Epochal Breakout, which looks way different and shows a massive divergence that is going to be made good by silver catching up big time at some point. Although silver's three-year chart still doesn't look very inspiring, with weak price performance and an overhang of resistance between about $16 and $18.50, the volume buildup of recent weeks, coupled with gold's strong performance, suggests this resistance could be overcome a lot more quickly and easily than many would believe possible.
Finally, the long-term 10-year chart shows that despite gold breaking out from its giant six-year long base pattern over the past week or so, silver is still scraping along not very far off its lows. However, this is not a situation that is expected to persist for much longer. If gold goes up it's going to take silver with it, and the volume buildup in silver as it has risen off recent lows suggests that this rally has legs. What is believed to be happening is that silver is just starting to rise off the second low of a double bottom, whose first low occurred late in 2015/early in 2016. If this interpretation is correct, then we are at an excellent entry point here for all silver-related investments.
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years' experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.
Charts provided by the author.
CliveMaund.com Disclosure: The above repr0esents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.
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