With Wednesday’s slide below key medium-term resistance in the price of silver, judging by the media attention, the selloff seemingly took more than a few players by surprise. As I pointed out Tuesday in my take on gold, the charts for both metals do not look good for bulls, or at least not for the longer-term.
Allow me to walk through a few charts to give us all some more perspective on the potential near- and long-term fate for silver.
The complete disconnect between stocks — in this case, the S&P 500 — and silver/gold kicked into high gear toward the latter part of January. Stocks, all bulled-up about improving macro data, ramped higher while silver and gold slumped.
Please read the previous sentence again. This is important.
Off the 2009 lows, the general theme was asset class inflation as central banks pumped money into the system, forcing investors to buy equities. All the while, however, gold and silver also rose sharply as investors doubted the economic recovery. This ultimately led to a bubble in both silver and gold that, as mentioned above, stalled out in 2011.
The selloff in silver and gold over the past two months, however, came as a result of better economic data that investors actually believed in.
In other words, an improving economy is putting pressure on save-haven assets (aside from Treasuries), which as a general theme — barring a renewed major recession in the coming 12 months — should keep silver and gold from making significant bull runs and over time force them to continually slide lower.
On the next chart below, I plotted the iShares Silver Trust (NYSE:SLV) in red and SPDR Gold Shares (NYSE:GLD) in blue, dating back to late 2008. The two charts look remarkably similar; both had a steep multiyear rally from 2009 to 2011, followed by downside consolidation that has now brought them to multiyear support levels.
Closer up on the chart of the SLV, we see that it is now within arm’s reach of the June 2012 lows (near $25.30), which marks the horizontal support point above on the multiyear chart.
While silver doesn’t necessarily immediately have to blow through this multiyear support level, chances are that it eventually will … and when it does, it won’t find much useful support below for at least another 10% to 15%.