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Silver is Looking Like it Wants to Stir

Gold has advanced decently of late, pressing to a six-year high.  Despite all the chatter about how undervalued silver has been, it has not done nearly as well.  In fact, it still does not look like it is even in an uptrend yet.  Silver has disappointed a lot of its fans and sentiment remains very subdued, if not outright negative. The ratio between the two metals is very stretched by historic norms (it has been above 80 only on four occasions since 1980).

July Silver Chart 1

There may be reasons for this.  Central banks are aggressively buying gold, not silver.  In addition, their recently adopted easy money policies have affected gold more than silver.  This is because gold today is more of a monetary metal and silver is an industrial metal.

That said, silver has a long history of being money and reacting to monetary stimulus.  Likely, it will have its day.  Typically, it follows gold and has a habit of exploding when it starts to move. The question is when.

July Silver Chart 2

It would seem that some sort of decision point for silver lies just ahead.  As mentioned before, unlike gold, silver is not even in a bona fide uptrend as it has stayed below the long-term linear trend and has stayed below its long-term moving averages.

But that may be about to change. Silver is now pressing up against its 3-year bear trend line, and also now has crept up above both the 40 week and 65 week moving average.

What silver needs now is a breakout above $15.60 and a rally through $16.20 to break the down trend and complete a small bottom.  That should be enough to also turn its long-term moving averages upward.

Silver remains structurally in deficits, which is to say, there is more demand than mining output.  The difference has been filled by investor dishoarding.  A positive price trend will not only tend to stop dishoarding, if vibrant enough, it will actually attract monetary flows and investors will start to purchase bullion.  In short, a commodity in deficit is particularly open to a positive change in price trend.

Because most new silver is a byproduct of copper mining, a rising silver price does not necessarily mean more supply will be forthcoming. A move upward in price is not enough to cause mine management to produce more copper.  Only more copper demand would cause that.

Either silver will have enough momentum to break out, or it will stay in the doldrums.  Whatever silver decides to do, it looks to be pretty soon.

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