Silver Springboards Higher - What's Next? / Commodities / Gold & Silver 2020

The silvermarket is on the move. In fact, it’s finally moving out ahead of otherprecious metals and showing some real leadership.

After the panic selling of March briefly brought spot silverbelow $12/oz, prices have since surged by 50%. That’s an impressive move totake place within the span of just two months.

The question for investors now is whether the recent rally insilver is fleeting or sustainable – whether it’s evidence of extreme marketvolatility that suggests more danger ahead or the first leg of a much largerbull market to come.

In our view, there is good reason to believe that the March 2020lows will never be violated and that silver is therefore in a structural bullmarket.

Last Monday, Money Metals posted “Silver Breakout in Progress”as a market update. We noted, “Silver prices will run into some overheadresistance just above the $16/oz level. Once broken, that technical line on theweekly chart could serve as a springboard for a run toward $19/oz – andultimately higher.”

The technical clues we presented for an imminent breakout wereconfirmed that Friday. Silver springboarded to $17/oz. Then yesterday,carryover momentum brought prices up near $18/oz before this morning’spullback.

The bullish mega-trend for silver – fueled by acceleratingmonetary debasement, declining worldwide mine production, and strong safe-havendemand – is likely just beginning.

At the same time, there are growing signs of shortages inphysical silver, at least in some parts of the world. This week, bullion bankshave been scrambling big time to find the 1,000-ounce silver bars they need tomake near-term delivery commitments on the Comex. This shortage in the U.S. ofdeliverable silver has caused New York spot silver prices to diverge more than50 cents above London spot. Such a spread is extremely rare, and arbitrageursdo not seem able to transport enough silver from London to New York to closethe gap anytime soon.

None of this means there can’t be sharp pullbacks to come.Silver is a notoriously volatile commodity that seems to specialize in shakingpeople out (especially leveraged speculators in the futures market).

Although nothing is guaranteed in these wild and oftenmanipulated markets, the blue line shown in the chart above, which had beenresistance, will likely now serve as final support in the event of a selloff.

Fundamentally, a silver price below $16/oz is simply notsustainable given that all-in mining costs for the metal currentlyrange into the high teens.

While another bout of irrational panic selling over virus fearsis possible should it make a deadly resurgence, the remaining upside potentialfor silver in the months and years ahead far exceeds its downside risk.

Silver is historically cheap versus just about any othercommodity or asset class on the planet.

When measured against gold, silver has never been cheaper –going back through hundreds of years of record-keeping – than it was during thedepths of the March selling.

Silver’s unprecedented cheapness versus gold (at one point1/126th the gold price) gives us further confidence that those extreme lowswere anomalous displays of “peak fear” that will never be seen again.

At present the gold:silver ratio comes inright around 100:1. Although still extremely elevated (by normal standards) infavor of gold, silver has been rapidly gaining ground against its priciercounterpart and can be expected to continue closing the gap as the bull marketin both metals advances.

With an election coming up and uncertainties surrounding theeconomy and COVID-19, investor interest in precious metals is likely to remainrobust.

A ballooning federal debt and Federal Reserve balance sheet poseserious risks for holders of U.S. dollars.

Fed chairman Jerome Powell recently assured Congress the centralbank is “committed to using our full range of tools to support the economy.”They are all “tools” of currency debasement, regardless of what jargon oracronyms monetary planners trot out to describe them.

Granted, safe-haven bullion and ETF buying could taper off inthe event that the economic outlook brightens and investor fears recede.

But since more than 50% of silver demand comes from industrialapplications, a recovering economy isn’t necessarily a negative for prices –especially when so many other fundamental and technical indicators are nowturning bullish.

Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2020 Stefan Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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