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Freshly cast 30 kilogram silver ingots.
Andrey Rudakov/Bloomberg
Gold and silver often trade in sync. And after lagging gold for the past eight months, silver appears to be trying to play catch-up. Will it be successful? Let’s look at the charts.
For the past 18 months, spot silver has traded between $22-$30 an ounce. It has finally progressed from a “declining phase” to a period of “base-building.” This is where the price of a security trades within a well-defined narrow range after being dragged lower for months.
Spot silver declined from $30 in February 2021 to $21 in October. Since then it has traded between a $21-$22 support level and a $25.50 resistance level. Then last week, silver hurdled its downtrend from last May.
What is encouraging is that volume flows have surged more quickly than silver’s price has. Volume flows are computed by adding the day’s trading volume on days when silver closes up and subtracting the day’s trading volume on days when it closes down. Because volume leads price, it should be only a matter of time before silver’s price strengthens.
Above is a weekly chart of the silver/gold ratio (silver divided by gold). Notice that for the past 5 1/2 years, the ratio has formed a rounding base. It is encouraging that in the latest pullback, the ratio held exactly at the 200-week moving average, which defines the long-term price trend. But before silver can outperform gold meaningfully, it must be able to overcome formidable resistance (orange-dashed line). That means that the silver/gold ratio is improving but isn’t ready for prime time yet.
Cyclical stocks mea culpa. My Nov. 12 column was entitled “Cyclical Stocks Could Beat the Market. Others Are Set to Lag Behind.” Instead of outperforming, cyclical stocks have lagged defensive stocks by 4% since then. I’m using a towel to wipe egg off my face.
Andrew Addison is the author of The Institutional View, a research service that focuses on technical analysis.
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