Key Ratios Point To Higher Prices Ahead for Silver

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

SLV – It’s been a volatile month for precious metals, with the price of silver (SLV) briefly spiking above the $27.00/oz level before retreating below $25.00/oz this week. However, while this has put a minor dent in short-term momentum, key ratios continue to point to higher prices ahead for the metal. If we combine this with the silver’s bullish posture on its long-term chart and the position of real rates, I see several reasons to be bullish over the next year. Let’s take a closer look below:.

It’s been a volatile month for precious metals, with the price of silver (SLV) briefly spiking above the $27.00/oz level before retreating below $25.00/oz this week. However, while this has put a minor dent in short-term momentum, key ratios continue to point to higher prices ahead for the metal. If we combine this with the silver’s bullish posture on its long-term chart and the position of real rates, I see several reasons to be bullish over the next year. Let’s take a closer look below:

Chart Description automatically generated

(Source: TC2000.com)

While there was much anxiety about the 1st rate hike in years by the Federal Reserve this month, the chart below shows that we’ve seen no real change in real interest rates, hence no change in the bullish picture for precious metals. This is because even though the 3-month Treasury Yield has increased to 0.40%, CPI readings soared to 7.9% last month, up another 40 basis points. This more than offset the recent 20 basis point increase in the 3-month Treasury Yield, leaving real rates sitting deep in negative territory at (-) 7.3%.

Generally, precious metals perform much better in periods of negative real rates, given that there is no opportunity cost to holding physical metals due to the extremely low interest rates. In fact, there’s an opportunity cost to holding excess cash, given that inflation is eating away at the value of money sitting in cash. With real rates sitting in the deepest negative territory they’ve been in for decades, this is an extremely favorable backdrop for precious metals, suggesting that dips will continue to be bought in gold (GLD) and silver.

Chart, line chart Description automatically generated

(Source: YCharts.com, Author’s Chart)

Moving over to a couple of key ratios below, we also see a bullish posture. Historically, silver performs much better during periods when it’s outperforming the S&P-500 and Nasdaq Composite, and this also happens to be the case currently. As the charts below show, silver has regained its key moving averages relative to the S&P-500 and Nasdaq, a similar setup to June 2020. History does not have to repeat itself, but over the following two months in the prior signal, silver enjoyed a 50% return, soaring from $19.40/oz to $29.70/oz. So, as long as silver stays above these key moving averages, this indicator will remain on a bullish reading as well.

Chart, histogram Description automatically generated

(Source: TC2000.com)

Finally, and most importantly, silver’s long-term picture continues to remain bullish, with the metal trading in a massive base-on-base pattern. These base-on-base patterns typically resolve to the upside if prior resistance becomes new support, and this is exactly what we’ve seen with silver. While these base-on-base patterns can be volatile, and they do not preclude 8-10% corrections, it’s a relatively safe bet to enter new positions in the bottom half of the base, with stops below the prior resistance level (new support). This coincides with the $21.50/oz level.

Chart Description automatically generated with medium confidence

(Source: TC2000.com)

So, what’s the best course of action?

Based on the favorable fundamental and technical backdrop for silver, I believe it makes sense to accumulate some of the highest-quality miners on weakness, and two names that stand out in the silver space are Wheaton Precious Metals (WPM) and Discovery Silver (DSVSF). The former is a high-margin precious metals streaming company that receives a portion of future revenue from mines in exchange for an upfront payment and has impressive growth over the next several years. The latter appears to be a potential takeover target, with a massive deposit (910 million silver-equivalent ounces) in Mexico that has the potential to produce over 25 million silver-equivalent ounces per annum.

This significant production profile makes Discovery one of the more impressive projects sector-wide, and the project has very reasonable upfront costs of ~$370MM despite its scale. Notably, the project is very straightforward, being an open-pit mine with favorable metallurgy that benefits from existing local infrastructure and a strip ratio below 2.5 to 1.0. Given the attractive economics, I would not be surprised to see the company acquired in the next two years, and a takeover offer would likely come in north of US$2.50 per share, pointing to more than 65% upside from current levels.

However, for investors that prefer to play it safe and own physical silver, I see the ideal buy zone coming in at $23.80/oz or lower. A dip to this level would place the metal back in an oversold condition and allow for a relatively tight stop relative to key support at $21.50/oz. For now, I have no position in SLV with the metal outside of its low-risk buy zone. However, I remain long Discovery Silver and GLD and I expect much higher prices by year-end.

Disclosure: I am long GLD, DSVSF

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. Given the volatility in the precious metals sector, position sizing is critical, so when buying small-cap precious metals stocks, position sizes should be limited to 5% or less of one’s portfolio.

Want More Great Investing Ideas?

3 Stocks to DOUBLE This Year


SLV shares were trading at $22.92 per share on Tuesday afternoon, down $0.36 (-1.55%). Year-to-date, SLV has gained 6.56%, versus a -5.52% 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...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
SLVGet RatingGet RatingGet Rating
SPYGet RatingGet RatingGet Rating
GLDGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Does Trump Change Stock Market Outlook?

The rally of the S&P 500 (SPY) after the election gives a sense that investors are happy that Trump was elected. But perhaps there is more to this story than meets the eye. That’s why Steve Reitmeister shares his updated market outlook taking into account the pros and cons of Trumps proposed new policies. This comes with a preview of his top 11 stocks to buy now.

3 Streaming Stocks Benefiting from Cord-Cutting Trends

As streaming continues to dominate the digital entertainment landscape, the global streaming market presents a lucrative investment opportunity. So, it could be ideal to invest in fundamentally solid streaming stocks Netflix (NFLX), Walt Disney (DIS), and Roku (ROKU). Read further...

3 Gold Stocks to Buy as Safe-Haven Demand Grows

Gold is a stable investment now due to its role as a safe-haven asset during economic uncertainty, rising demand, industrial use, and growth, bolstered by central bank purchases and interest rate cuts. Therefore, investors should consider investing in top gold stocks such as Newmont (NEM), Barrick Gold (GOLD), and Agnico Eagle Mines (AEM). Read more...

3 AI Stocks Transforming Industries and Driving Future Growth

With rapid digitalization, rapid adoption, and development, as well as surging demand, the AI market is on the rise. Amid this backdrop, investors could buy fundamentally solid AI stocks NVIDIA Corporation (NVDA), Microsoft (MSFT), and Meta Platforms (META) poised for substantial gains. Continue reading...

Updated Stock Market Expectations

The S&P 500 (SPY) has already reached an impressive goal of hitting 6,000. Yet you can see how much shares are struggling now up against this resistance. Steve Reitmeister shares his views on what comes next for the market and his top 10 stocks to stay on the right side of the action.

Read More Stories

More iShares Silver Trust (SLV) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All SLV News