Silver ended the month of August up an impressive 13.2%, and follow-on gains early in September has put the white metal above $32 for the first time since April.
Gold by comparison — the far larger, more liquid of the precious metals — posted a monthly gain of 4.8% for August.
CLOSE CORRELATION
The two markets tend to be pretty tightly correlated, but I often look to the gold/silver ratio for technical clues. Given the aforementioned August price action, the fact that the ratio has retreated from the upper 50s to the low 50s in recent weeks should come as no surprise.
SILVER IS A LEADING INDICATOR
It now takes fewer ounces of silver to buy an ounce of gold. I view this as a generally positive harbinger for the precious metals complex as silver tends to lead when inflation expectations are on the rise. While both gold and silver have performed admirably in the recent deflationary environment, the precious metals really perk up when inflation expectations do.
INFLATION SEEDS ABOUND
The national average gasoline price hit a new Labor Day record of $3.83 a gallon on Monday, besting the old record of $3.69 a gallon from 2008. Meanwhile food commodity prices continue to soar as a result of the drought affecting much of the United States. On top of that, it appears that both the Fed and the ECB are on the verge of even more accommodative monetary policy, which is further stoking inflation expectations.
THE CHART
From a technical perspective, I’m loving silver’s recent price action relative to the 20-, 50-, 100- and 200-day moving averages evident in the chart. Silver has retraced about 27% of the entire decline from last year’s peak at $49.79 to the corrective low established about a year ago at $26.05.
A break of the 38.2% retracement level at $35.12 would offer additional confidence that the long-term uptrend in silver — like the long-term uptrend in gold — is re-exerting itself.
Such a move would shift attention to the high for this year at $37.50.
[Editor’s note: In addition to buying physical metal and trading futures, ETFs offer another way to access the metals markets. For example, while there are many silver ETFs available, one option to consider would be the iShares Silver Trust ETF (SLV).
Are you getting bullish on the metals again?]
