One of the most dramatic parts of the springtime swoon we just suffered through was the meltdown in the precious metals. The iShares Silver Trust (NYSE: SLV) lost nearly 34% in just a few weeks while the SPDR Gold Trust (NYSE: GLD) lost 7%. Given the bullish, speculative fever that had built up in many quarters, the wipeout hit sentiment hard.
Things are changing now. After two false downside breakdowns, silver is perking up again and has blasted out of its multi-month consolidation range. The pattern looks bullish, with a positive divergence from its stochastic indicator. It seems that all the negative energy has been expelled — clearing the way for a recovery rally.
The driver seems to be higher inflation expectations, evidence of which can be seen in the bond market. No doubt this is related to the combination of better economic growth prospects as well as the Fed’s “stealth stimulus” of negative real interest rates, a topic that I explored in a post last week.
On a technical basis silver looks ready for a sustained run higher after months in the doldrums. Fundamentally, a more optimistic outlook and a return of inflation fears look ready to pique interest in precious metals. The kicker is that this move is coming despite some stabilization in the U.S. dollar, which is normally a negative for gold and silver. That’s a sign that investor demand is so strong it’s overriding any volatility from the currency market.
As a result, I’ve recommended my newsletter subscribers add a position in silver miner Silver Wheaton (NYSE: SLW), which is benefiting from the breakout move in silver futures. The move is still young, with a return by SLW to its April high worth a 30% gain from here. For broader exposure, consider the Global X Silver Miners ETF (NYSE: SIL).
Disclosure: Anthony has recommended SLW to his newsletter subscribers.
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