Silver is like the middle child of precious metals, often overlooked and difficult to understand. Aside from its technical utility in our phones and solar panels, silver is foremost a commodity. Unlike gold or the gold mining ETFs, GDX and GDXJ, when silver moves it tends to be explosive. While it tends to stay in a $1 – $2 trading range, its powerful moves have historically outperformed gold. There have been a number of times in recent memory where silver has seen such violent moves.
In 2011, silver proved its mettle for the first time since the early 2000’s. To staunch the bleeding following the Great Recession, the U.S Government bought over 600 billion in Treasure Bills by the end of Q2. This lead to a chain reaction with gold at the helm, the miners following behind, and silver playing catchup. From July 1st, 2010 to April of 2011, Silver shot from $18 to $47. Many investors found themselves taking their profits too soon, only to re-enter when the rally was over.
When trading silver, it is critical to look for signs of a blowoff top to indicate when a rally is coming to a close. Had the layman investor in silver recognized the price action of silver, they would have only sold when the stock ticker was blowing steam. During the final month of silver’s uptrend, the price soared from $37 in March, to $47 in April. In previous months, silver had only made gains of a few dollars. Like the swing seen with silver in the 1980’s, this gain of $10 in one month served as a sell-signal to many savvy investors, allowing them to exit their trades before silver saw a massive correction.
The relevance today? Silver has been known to peak when there is a large hyperinflation trend. Specifically, in the 1980s the U.S saw inflation reach disproportionate levels leading to record prices for silver and gold. It should be noted that excessive amounts of liquidity being pumped into the system lead to hyperinflation, as can be seen with the 2011 round of asset buying. With the FED launching a new Quantitative Easing program, purchasing Government Bonds and reducing interest rates to zero, we can expect to see some explosive price action for the metals in the coming months! Our Investors will be more than prepared to make some serious profit.
