Silver Lining

January 7, 2014

Silver had a rough time in 2013. It declined more than gold during a year that was clearly anti the metals sector.

But it looks like this is about to change…

Without a doubt, the silver price is bombed out. It has declined so far, so fast that it’s extremely oversold. Based on the historical record, whenever silver has been this extreme, it generally preceded an upmove in the silver price.

In other words, silver is set to rise. And once silver takes off, it’ll be off and running. That is, it rarely looks back.

Looking Good

Looking at silver’s technicals on Chart 1A, you’ll see what we mean…

Note that silver is currently at a critical juncture where it will likely hold.

It has declined to its 11 year uptrend, which is also close to the 2008 highs near $20. This means that as long as silver stays above its June intraday low at $18.20, this area will continue to provide a solid support level.

The picture is similar when we take a look at the silver/gold ratio because it too is at an important juncture.

As you can see, the ratio has been declining since the 2011 peak, illustrating that silver has been weaker than gold since then.

But here too, once this ratio rises and breaks above its downtrend, it will clearly be a strong sign of a bottom because silver tends to outperform gold during up moves. It also usually outperforms the other metals by a wide margin too.

Strong  Fundamentals

Interestingly, these promising technical signs are coinciding with an array of bullish fundamental factors for silver…

As you know, the global economy is picking up. In fact, it’s now poised for its fastest growth since 2010. This is good news for silver.

Unlike gold, silver is both a precious and an industrial metal. So as the world economy gains momentum, the demand for industrial silver will continue to grow, driving the price higher.

The same is true of investment demand.

Since silver has always been the “poor man’s gold,” it’s more user friendly. That is, silver is far less expensive than gold and it’s easy to buy. This makes it a more desirable precious metal, which explains why silver tends to outperform gold when both are rising.

Currently, for instance, China and India’s silver demand continues to grow. The story is similar in the U.S. where sales of minted silver coins are at all-time record highs. And overall demand around the globe is picking up steam as well.

The bottom line is that annual consumption is far greater than silver production. This means there’s a huge silver deficit, which is very bullish for higher prices.

And once silver does head higher, investment demand will soar to far higher levels. Remember, rising prices attract attention. So this in turn will drive silver up even further.

How Will We Know When Silver Starts Its Upmove?

A sustained rise above $21.50 would be a strong sign that silver’s upmove is very likely getting underway.

That’s what we’re currently watching and we urge you to do the same. With gold and silver rebounding as this new year gets started, we may end up seeing some positive action sooner rather than later.

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Mary Anne & Pamela Aden are well known analysts and editors of The Aden Forecast, a market newsletter named 2010 Letter of the Year by MarketWatch, which provides specific forecasts and recommendations on gold, stocks, interest rates and the other major markets. For more information, go to www.adenforecast.com

Mary Anne & Pamela Aden are well known analysts and editors of The Aden Forecast, a market newsletter named 2010 Letter of the Year by MarketWatch, which provides specific forecasts and recommendations on gold, stocks, interest rates and the other major markets. For more information, go to www.adenforecast.com

Most silver is produced as a byproduct of copper, gold, lead and zinc refining.