Checking In on Silver Prices

So far, the month of March has been quite interesting for the precious metals. The gold price has finally broken out of its trading range and appears set to rally further in the weeks ahead. The silver price has moved forward in tandem with gold. Can it break out soon too?

Let's start this week with COMEX gold. It has had a terrific run over the past three weeks with price moving up about 8%. We've been watching the three-year trading range of $1700-$2000 for a breakout, and it has finally occurred. The expectation was that this breakout would lead to a rush of new investor interest in gold in all its forms—and it has. Total COMEX gold contract open interest has risen by over 25%, and this new speculator cash is what drove price from $2100 to $2200.

As you can see on the chart below, price is currently working through a "bull flag" consolidation with $2150 as important support. If it can resolve this pattern to the upside, the next move higher should take price to our initial 2024 target of $2250-$2300.

The key to a successful resolution to this pattern will be the market reaction to the central bank meetings later this week. The Bank of Japan meets on Tuesday and is expected to abandon their Yield Curve Control and Zero Interest Rate policies. The U.S. Federal Reserve then meets on Wednesday. Will the Fed's latest Summary of Economic Projections continue to project three fed funds rate cuts in 2024 or will that forecast be cut to two? After that, how will Thursday's ECB meeting affect the euro and, by extension, the U.S. dollar index?

If COMEX gold can see its way through these developments, new all-time highs should follow.

But let's turn our attention to silver, as the price of that precious metal is still rangebound. Many silver enthusiasts are frustrated by the muted reaction to gold's rally, and that's understandable. However, the upside to this situation is that it continues to allow all of us more time to accumulate physical and trading positions before the breakout occurs.

In our annual macrocast that was written back in January, we projected that COMEX gold would break out this year—and it has. However, I was cautious in assuming that COMEX silver would quickly follow with its own breakout. Here's an excerpt:

In short, for COMEX gold to run to $2300, it had to first break $2100. For COMEX silver to run to $35 and beyond, it has to first break $28. And to break $28, it has to first break $26! Below is an updated version of the chart posted above. As you can see, progress has been made but a breakout to rival gold's is nowhere near. At least not yet.

That the breakout in silver is still pending is frustrating to many silver stackers, myself included. However, it's actually beneficial. Why? Because the breakout is coming. Of that, you can be certain.

How can I state this with such confidence? Because when gold moves to $2300, the gold/silver ratio is not going to be 100:1, implying a silver price of $23. And when gold moves next to $2500, the gold/silver ratio won't be 100:1 then either, and silver won't be $25. Instead, even if we use a median gold/silver ratio of 80:1, gold at $2300 implies silver at $28.75. Gold at $2500 implies $31.25.

But the thing is, when silver breaks out later this year or next, it will receive the same rush of attention and speculator cash that gold is currently enjoying. As such, the price target will not simply be $29 or $31. Instead, the initial goal will be $35 or higher. That's a greater than 50% move from here and one from which you could greatly profit if you get correctly positioned before it begins.

One final part of that positioning is understanding the long-term correlation between the mining sector and the silver price. The chart below displays silver in candlesticks and the GDX mining share ETF as a blue line. Note the 95% correlation and then project where the GDX might trade when silver finally breaks out.

In summary, please do not be frustrated by silver's muted reaction to the breakout in COMEX gold. Most of us have been waiting over a decade for silver's next mad rush higher. We can wait a few more weeks. Just understand that silver's breakout is coming and use this current time to position yourself accordingly.