Is silver back en vogue again? It sure looks that way judging from the recent action of the iShares Silver Trust (NYSE:SLV). The fund has rallied nearly 34% off its late-2011 low, and just last week it crossed back above its all-important 200-day moving average line. And, several of the silver-mining stocks are in tow.
The question is, how far can silver go from here, and which of those stocks are poised to deliver the best returns? We’ll name some names in a second, but let’s make a silver forecast first.
Silver’s Shiny Again
Click to Enlarge Admittedly, silver is overbought again, at least in the short run. That doesn’t mean it’s doomed, though. It just means we can reasonably expect the bears to push back more than a little right now. Even a pullback here, however, can’t change the fact that the bigger trend is undeniably bullish now that the 200-day average line as well as a key Fibonacci retirement line (38.2%) have been hurdled by silver’s close at $35.40 per ounce on Friday.
The depth of any temporary pullback will largely depend on which of the support lines the bulls decide to use as a rally point. The 20-day moving average line (blue) was a key floor back on the 20th, but the 50-day average line (purple) — currently at $31.55 — also has a bit of a history as support and resistance for silver. Make no mistake, though — silver already has cleared a key milestone; the rest is all academic.
There’s something else about this rally that screams “more upside ahead” though, in a contrarian way.
Notice anything missing with this rally? It’s volume — there’s practically none. Normally a lack of volume would be bearish in that it indicates a clear lack of participation and interest, and therefore suggests a lack of follow-through. In this case though, silver has already run up and followed through without the need for a lot of volume.
Who’s buying it here doesn’t really matter. What matters here is that once the market realizes silver’s heating up again, the volume spigots will be turned on in a major way and things will really start to heat up and lead us into the next leg up. That move could be just around the corner following a decent dip.
Bottom line? Silver’s next stop is around $40.30 per ounce. Although it might not get there in a straight line, it’s got enough bigger-picture momentum to get there in the foreseeable future. If it can build a good base somewhere around there, the next stop after that is the $48 area where it peaked last April. Hopefully we don’t set up a blowoff top (and subsequent oversized pullback) this time around.
The Best of the Best
The easy way to play this budding trend would indeed be with the iShares Silver Trust. That’s not necessarily the highest-octane way to play it, though. A duo of silver miners — or at least silver-focused miners — might be setting up for a bigger reward.