Silver Price: Wait For A Swing Low

June 18, 2018

London (June 18)  Many investors thought the bottom was in for silver (SLV) but the sizable drop last Friday (June 15) has put everything back in context. Silver (being a leveraged play on gold (GLD)) is attracting investors in the precious metals space. Why? Well, it is one of the commodities that got absolutely hammered in the recent bear market. Gold, for example, didn't even lose 50% since its bull market top in September 2011 (when it reached over $1,900 an ounce), but silver dropped from around the $50 mark in April 2011 to under $14 an ounce in late 2015.

Despite the bull run in precious metals, silver is still only trading around the $16.50 an ounce mark. As a result, the gold/silver ratio is trading at much higher numbers than historic averages. Despite the white metal's strong up-move out of its bear market bottom, it has been trading in a significant consolidation for the best part of 18 months now. These types of patterns usually end up in a strong trending move either up or down. Here is how I see things shaping up at present.

The volatility of silver was really illustrated in June. The white metal started the month off aggressively before giving back the majority of its gains on Friday last. In saying this, silver's weekly stochastics are still pretty oversold. We use this technical indicator to spot intermediate bottoms. As the chart illustrates below, silver's clear last intermediate low was in December of last year. This means it is in the timing band for a brand new intermediate cycle. Why?

Because like clockwork, intermediate cycles in the precious metals sector usually last around 6 months. Although gold's move down last Friday resulted in a lower low, silver is still trading well above its May lows showing underlying strength. The mining complex (GDX) has been acting in a similar fashion as if the sector is sniffing out a new intermediate cycle low. Usually, both silver and the mining complex vastly underperform gold in an intermediate decline. Not this time which has to be positive for silver going forward.


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