Silver's Long-Term Fundamentals Remain Bullish

NYSE: SLV | iShares Silver Trust News, Ratings, and Charts

SLV – Silver (SLV) has been on a tear since early April. There are many reasons to be bullish with increasing industrial demand as silver is used in solar panels and EV batteries. Taylor Dart provides an in-depth look at silver’s fundamentals.

While the S&P-500 (SPY) continues to get all the attention recently as value stocks come back into vogue, one asset class that continues to perform well with little attention paid to it is silver (SLV).

As of Wednesday’s close, silver is up nearly 6% year-to-date, underperforming the SPY’s 12% return, but over the past year, SLV has easily outperformed the SPY, up 52% vs. the end of Q2 2020 vs. the S&P-500’s 36% return. This continued outperformance relative to both gold (GLD) and the S&P-500 is a very bullish sign for silver, given that this is when the precious metals complex performs its best.

It certainly helps that we have sentiment that is nowhere near exuberant relative to other assets and a new multi-year high in inflation, emboldening the thesis for holding precious metals. With this backdrop, this is a clear buy-the-dip market. Let’s take a closer look below:

A computer screen capture Description automatically generated with low confidence

(Source: TC2000.com)

If we look at the chart above, we can see that silver (blue line) is not only outperforming the S&P-500 and has begun a new uptrend after a 10-year bear market vs. the S&P-500, but it’s also easily outperforming the GLD. This is although the S&P-500 has enjoyed one of its most impressive runs in history with a 93% return off the March 2020 lows.

So, while the S&P-500 has outperformed silver this year, the bigger picture shows that silver has been outperforming recently, and this bullish trend should remain intact as long as silver holds above $24.00/oz. The outperformance vs. gold is also a very positive sign, given that silver underperforms gold massively when we are nearing the tail end of bull markets, with this occurring in late 2011 when gold made a new high above $1,900/oz, but silver did not. The fact that silver is making marginal new highs while gold is consolidating is a bullish setup, suggesting that it’s still massively leading the metal.

Chart, histogram Description automatically generated

(Source: Daily Sentiment Index Data, Author’s Chart)

Moving over to sentiment for silver, we can see that the long-term moving average is sitting at 48% bulls, suggesting that there’s an even divide between bulls and bears. This is a positive sign for a market that’s up more than 50% in the past 11 months and one that is performing most other asset classes currently, including the Nasdaq.  While this current sentiment reading is not on a buy signal, which would require a dip below 25% bulls, it remains on a neutral reading with a slightly bullish tilt, suggesting that silver has lots of room to head higher if it breaks out without sentiment becoming an issue.

Chart, histogram Description automatically generated

(Source: TC2000.com)

Finally, if we look at the technical picture, we can see that silver is currently sporting one of the most impressive breakouts in the market, building a base-on-base setup from a multi-year breakout. This new base could take a few more months to build, but ultimately looks like it will resume to the upside.

This should provide a massive boost to margins for silver producers, with the sector already enjoying all-in sustaining cost margins above 50% at $28.00/oz silver. So, as long as silver remains above $23.00/oz where the monthly moving average lies (white line), I see no reason to get worked up over 10-15% corrections.

So, what’s the best way to play it?

For now, I see silver as a Hold, with the best area to accumulate the metal being closer to $25.00/oz. This area is the lower portion of the current base being built and provides a low-risk entry relative to a stop at $22.00/oz if this base fails.

In addition, I continue to see gold miners as attractive bets, given that a rising silver price should coincide with new highs for gold, and the gold miners are currently much more undervalued on balance than the silver miners.

This should lead to outperformance in the gold miners, with many trading at double-digit free cash flow yields vs. most silver miners trading at sub 5% free cash flow yields. In summary, I would view any dips below $25.00/oz on silver as low-risk areas to start a position, but see the Gold Miners Index as a lower-risk way to play precious metal equities currently.

Disclosure: I am long GLD

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.


SLV shares rose $0.11 (+0.43%) in premarket trading Thursday. Year-to-date, SLV has gained 5.13%, versus a 13.31% rise in the benchmark S&P 500 index during the same period.


About the Author: Taylor Dart


Taylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...


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