Silver Slips- Expect Lots of Volatility

Silver tends to be gold on steroids because the precious metal attracts lots of speculative interest when trends emerge. Nearby COMEX silver futures have traded as high as over $50 and as low as below $3.55 per ounce silver since 1980. The record peak came in 1980 at $50.36; the low was in 1993 at $3.523. In 2011, silver’s rally fell short of the 1980 high as the price ran out of upside steam at $49.52. After correcting to $11.735 on a spike to the downside in March 2022, silver recovered, and a rally took the price to a $30.16 high in February 2021. Over the past months, silver has been hanging around the midpoint over the moves at over the $20 level. 

In a January 15 Barchart article, I highlighted that silver had rallied since September 2022. I wrote, “Silver had parabolic potential” in that piece. While the price has corrected lower, I continue to believe the path of least resistance is higher. 

Silver falls on rising interest rates and a strong dollar

After the nearby COMEX silver futures contract traded reached a $24.53 per ounce high in January 2023, the volatile precious metal ran out of upside steam. 

The chart shows silver futures were at the $21 per ounce level on March 1 as silver made new lows for 2023. Rising interest rates and a strong U.S. dollar have weighed on the precious metal. 

The chart of the nearby March U.S. 30-Year Treasury bond futures has been trending lower as the U.S. Federal Reserve continues its hawkish monetary policy path. The latest January CPI, PEC, and PPI reports that came in with higher inflationary pressures economists had expected set the stage for further rate hikes. Rising rates increase the cost of carrying silver inventories, weighing on the price. 

After falling to 100.680 on February 2, 2023, the dollar index bounced over the 104 technical resistance level. A rising dollar makes silver more costly in other currency terms, causing demand and the price to decline. 

Silver is another green metal- Industrial demand is growing

The increasing demand for silver in photovoltaic cells, or solar panels, make silver a green metal. As the U.S. and many other countries worldwide address climate change by encouraging alternative and renewable energy sources, solar panels are replacing fossil fuel-generated electricity. 

Meanwhile, almost every electronic device requires silver, so computers, tablets, and smartphones increase silver demand. 

The two-decade trend remains choppy and bullish

The last time silver traded below $5 per ounce was in 2003. 

The chart illustrates silver’s bullish, but volatile price action over the past twenty years. After trading to a $49.52 high in 2011, nearby silver futures corrected and traded between $11.735 and $22.047 from February 2014 through June 2020. After rising and probing briefly above $30 in February 2021, silver has made lower highs and lower lows, but the price remained above the $17.32 level. Silver has not traded below $10 since December 2008 or under $20 since November 2022. 

Buying silver when it looks worst has been the optimal approach

The twenty-year low highlights the pandemic-inspired spike lower in March 2020 that took the price below $12, an eleven-year low. It also shows that sharp downside corrections or upside rallies have reversed over the past years. 

Silver investors who bought the metal on significant downside corrections have followed the optimal approach for years. Meanwhile, taking profits when silver looked like it would explode higher has maximized profits on long positions. 

Silver tends to exacerbate the price action in the gold market as it attracts trend-following and speculative trading and investing. Gold has been in a long-term bullish trend since 1999, and silver has followed. However, silver’s path has been far more volatile than gold’s over the past two decades.  

SLV is the silver ETF product- Physical and futures is the purest way to invest in the precious metal

The most direct route for a risk position or silver investment is via the physical metal. Precious metals dealers worldwide offer physical bars and coins, but they often command significant premiums to the nearby futures price. Holding physical silver in custodial accounts involves storage and insurance costs. Since silver is bulky, private holdings can be challenging. A 1,000-ounce silver bar worth around $21,000 weighs around 70 pounds. 

COMEX silver futures are also a direct investment route as they have a physical delivery mechanism during the expiration period. 

The fund summary for the iShares Silver Trust (SLV), the most liquid silver ETF product, states:

At $19.44 per share on March 1, SLV had $9.918 billion in assets under management. SLY trades an average of more than 16.85 million shares daily and charges a 0.50% management fee. SLV does an excellent job tracking the nearby silver future’s price action. The last significant rally took March COMEX futures from $17.56 on September 1, 2022, to $24.775 on January 3, 2023, or 41.09%. 

Over the same period, SLV rose from $16.19 to $22.54 per share, or 39.2%. One of the drawbacks of the ETF is that it only trades when the U.S. stock market is operating, and silver trades around the clock during the business week. The ETF will not reflect the price action if silver reaches a high or low when the stock market is not operating. 

Silver’s short-term trend is bearish as of March 1, but the long-term picture remains bullish, with the potential for significant price variance. 

• Dollar Recovers Early Losses on Month-End Buying
• Gold- Rates and the Dollar Cause the Correction
• Stocks Mixed on Weak U.S. Economic News and Higher Global Bond Yields
• Dollar Slides Amid Lower Bond Yields and Stronger Stocks