I know what you’re thinking: How can this be?
The deck has been stacked against gold and silver all year — from a drop in inflation to the craziness over Bitcoin by the anti-fiat currency types to last week’s surprise “taper on” decision from the Federal Reserve and the relatively anti-climactic conclusion to the fiscal fight in Washington.
All have combined to undercut the major reasons investors have to own gold and silver — a bulwark against inflation, an alternative to paper currencies, and a “risk off” asset to protect against anything from a eurozone breakup to a debt default by the U.S. government.
But the situation is turning around.
For one, the supply-demand fundamentals are shifting to the positive, as the prices of gold and silver have declined to such an extent that many high-cost mines are simply not profitable anymore. So they’re being shuttered. Also, central banks and consumers in emerging markets remain voracious buyers of the physical metals, and have scaled up their purchases.
Technically, silver looks set to break out of its month-long consolidation pattern and is demonstrating relative strength against gold.
Silver hasn’t been as damaged in the rout against precious metals this year because much of its demand comes from industrial uses. According to Bank of America Merrill Lynch, 50% of global silver demand is from industry and photography.
Thanks to this underlying support, the assets in silver ETFs such as the iShares Silver (SLV) have been rather stable compared to the rout under way in gold ETFs like the Gold Trust (GLD).
With the SLV pushing into an uptrend for the first time since October, I’m recommending clients take advantage of the move either via the SLV or the ProShares Ultra Silver (AGQ).
As for individual mining stocks, both Endeavour Silver (EXK) and Silver Wheaton (SLW) are looking like buys down here.
Disclosure: Anthony Mirhaydari has recommended AGQ to his clients.