What’s Next for Silver?

It has been quite a month for silver. Actually it's more like two months, as this current rally began in earnest back on April 1. But where does it go from here? Is it "to the moon" or is to something more rational, at least in the short term?

COMEX Gold Price Trends Since January

Let's start this week with a look at the price of COMEX gold since January 1. The year began on a down tick as rate cut expectations were cut back and the U.S. dollar index rallied. But then COMEX gold began to rally in late February, and it broke out of its nearly four-year trading range on March 1. It then rallied nearly 15% in the days that followed and has since been in a consolidation phase as it prepares to move higher again later this summer.

COMEX silver initially appeared hesitant to follow COMEX gold’s lead. It spent most of the first quarter moving sideways, but beginning on Sunday evening, March 31, it began to move higher. It first broke resistance at $26 and then $28. Recently it surged above $30 and accomplished a breakout of its own nearly-four-year trading range.

Factors Driving Silver's Breakout

What's driving this breakout in COMEX silver? A few of the usual items...

•             A drop in the U.S. dollar index. 

•             A slowing U.S. economy, leading to renewed rate cut expectations.

•             Continued strong industrial demand. 

•             Strength from copper as it moves to all-time highs.

All of those factors are contributing, but the primary driver appears to be a surge in investment and physical interest in China. In the great chart below from Garrett Goggin, notice the gap (premium) that has recently opened between the Shanghai price in yellow and the COMEX price in white. 

Here's an even closer look at the widening price gap:

Short-Term Implications for Silver Prices

So what are the short-term implications for the silver price in London and New York? We wrote about that last week, so there's no sense in rehashing that post. Instead, I'd urge you to click the link below and give it your consideration:

•              https://www.sprottmoney.com/blog/china-syndrome-in-precious-metals-market 

Today let's focus on price. Is price headed sharply higher from here as so many state/hope? Maybe someday, but not quite yet. Why? Because London and New York continue to play their hyper-leveraged games, and as long as they maintain a "seat at the table", their derivatives will have an influence.

For example, look at the latest Commitment of Traders report, surveyed on Tuesday, May 21. The table below shows the Large Speculator category at its largest gross long position since the survey of Tuesday, March 3, 2020. Accordingly, the Commercial category is at its largest gross short position since Tuesday, March 10, 2020. If COMEX continues to have an influence on price—which it does—you should expect attempts to "wash and rinse" those speculator longs in the days ahead.

But that doesn't mean that price has to fall sharply from here. In fact, as I type, it's already up nearly 4% from the lows back on Friday, the 24th. However, it does likely mean that price will continue to advance in the usual bull market pattern of two-steps-forward-and-one-step-back. 

As such, let's get to the title of this post. What's next, and where does price head from here? The long-term chart makes it pretty clear.

As you can see above, as long as COMEX silver is able to maintain above $30, the next target is somewhere between $34 and $36. Above there, it's $42 to $44. Above there, it's the old all-time highs between $48 and $50.

So let's not get ahead of ourselves and then be disappointed if COMEX silver prices aren't on the lunar surface in the next few weeks. Instead, let's take this as we have in the past bull markets. Be aware of how price moves in stages and then accumulate physical metal on price pullbacks and dips. Dollar-cost averaging—especially if you've been doing it since 2013—can be a very effective and profitable strategy as this latest extension of the precious metal bull market plays out.