Silver’s New Bull Market

By Adam Hamilton – Re-Blogged From

Silver officially entered a new bull market this week, decisively crossing the necessary +20% threshold.  Speculators and investors alike are returning as awareness spreads of how radically undervalued silver is compared to prevailing gold prices.  When silver awakens to a new bull market after a long bearish slumber, massive gains are usually unleashed.  Silver’s tiny advance so far is just the tip of the iceberg.

This Tuesday, silver surged 4.4% higher on strong Asian bidding in parallel with gold.  The catalyst was fascinating, China finally launching its long-awaited yuan-denominated gold benchmark.  China is the world’s largest gold producer, importer, and consumer, a commanding position that should grant it much bigger say in the gold industry.  The new yuan gold price will ultimately challenge London’s century-old hegemony.

The prospects of more Chinese with their deep cultural affinity for precious metals having easier price discovery and access catapulted silver into bull-market territory.  Its previous best close of 2016 about a week earlier was only 18.5% above its 6.4-year secular low in mid-December leading into the Fed’s first rate hike in 9.5 years.  Tuesday’s big Chinese silver rally boosted this young upleg’s gains to 23.7%.

That propelled silver decisively across that official new-bull-market metric of +20%.  Interestingly, silver was even faring better than gold.  While gold entered new-bull-market territory in early March, at best as of the middle of March it was only up 21.0% from its own mid-December 6.1-year secular low.  While silver got off to its usual slow start, it has already surpassed gold’s gains.  This outperformance will mount.

Silver’s new bull should surprise no one.  Late last year, I extensively discussed the anomalously-low silver prices and this metal’s resulting vast upside potential.  In early October I recommended a new long-term investment in an elite silver producer to our monthly-newsletter subscribers.  As of Tuesday it was already up 208%, a triple in less than 7 months!  I wrote about “Silver’s Deep Undervaluation” in late October.

In mid-January as gold stocks bizarrely fell to a fundamentally-absurd 13.5-year secular low, that very day I recommended multiple new silver-stock trades to our weekly-newsletter subscribers.  The best of those trades was up an astounding 293% as of Tuesday, a quadruple in 3 months!  And then as April dawned and silver remained stuck at $15, I wrote another essay explaining why “Silver Is Coiled Spring”.

The basic premise behind this research and all our recent silver-stock trades is simple.  Silver’s primary driver is gold, this white metal ultimately acts like the yellow metal’s sentiment gauge.  So when gold climbs decisively, it motivates investors and speculators alike to migrate capital back into silver.  Since silver is such a tiny market relative to gold, capital inflows have an outsized upside impact on silver prices.

The latest silver fundamental data from the venerable Silver Institute shows total global demand in 2014 of 1067m ounces, worth $20.3b at silver’s average price that year.  That compares to total world demand for gold of 4226.4 metric tons in 2014 according to the respected World Gold Council, which was worth $172.0b at gold’s average price in 2014.  That makes the world silver market less than 1/8th the size of golds.

So any dollar’s buying or selling impact on silver prices is on the order of 8x what it would be in gold!  It doesn’t take much capital at all in the grand scheme of the markets to really move silver.  And in early 2016, silver remained extremely undervalued relative to its dominating primary driver gold.  So a mighty silver bull was inevitable, like in the past silver soon had to catch up with and then surpass gold’s gains.

While that +20% new-bull-market threshold may be arbitrary, it is universally accepted and therefore has a massive impact on popular sentiment.  Assets in official-bull-market territory are viewed far more favorably by market participants, who love to chase winners.  So new capital inflows accelerate in bull markets, with buying begetting more buying.  Traders’ purchases push prices higher, enticing in more traders.

But like all bulls, silver is definitely climbing the proverbial wall of worry.  Wall Street remains pessimistic on silver, expecting this move to run another 5% or 10% higher at best before more Fed rate hikes slam silver lower again.  Never mind that history proves gold has really thrived during past rate-hike cycles, which pushes silver up!  Most professional analysts still remain very skeptical on this silver bull’s sustainability.

With silver’s new upleg shifting into bull-market mode this week, it’s very important to consider what silver speculators and investors have been up to.  Is the strong buying fueling silver’s big gains in recent months fundamentally different from what drove recent years’ major rallies that soon collapsed to new bear lows?  Very encouragingly, the answer is yes on both the speculators’ and investors’ fronts of the battle.

Let’s start with futures speculators, who had an outsized influence on silver prices in recent years with investors largely abandoning silver.  This chart superimposes silver prices over the weekly total long and short positions in silver futures held by American speculators.  Every major silver rally in recent years was



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