Very little happened in the precious metals market both yesterday and in today’s pre-market trading – at least so far. We will take this opportunity
to discuss something that we haven’t done in a while – silver stocks. To be clear, we’re not going to discuss the silver mining stock selection, as
that’s something our proprietary algorithms do on a daily basis. And yes, during the recent long trade, the gain on the individual gold and silver
miners was bigger than the one from the GDX ETF.
Instead, we’re going to take a look at this sector’s performance and compare it to one very similar case from the past. Yes, just one, which may not
looks like an appropriate base for drawing conclusions, but the level of similarity makes it definitely relevant to the current situation. So, without
further ado, let’s take a closer look at the SIL ETF – the proxy for silver miners.
Ever since the SIL ETF started trading (in 2010), we saw three significant rallies in gold and silver. The first rally took place right at the beginning of
this chart, leading to the 2011 tops. The second rally started in early 2016 and it was significant in case of both metals. The third notable rally
started in the second half of 2018 and it ended in August 2019. It was much bigger in the case of gold than it was in silver and mining stocks, but it’s
clear that overall it was something major. The first takeaway from the above chart is based on the sizes of these three moves. The most recent
upswing in the silver stocks was tiny. Even though gold and silver moved higher in a visible manner, silver miners are barely up. To be clear, the
rally is visible, but it’s orders of magnitude smaller than what we saw in 2016. We copied the sizes of the previous rallies to the current situation
(blue and green dashed lines). It’s clear how tiny the recent upswing was compared to them.
The mining stocks are the part of the precious metals market that tends to show strength at the beginning of a major move up. We saw exactly the
opposite. Silver miners were weak compared to what the underlying metal did. Consequently, the odds are that what we saw last and this year was
not the start of a long-term bull market in the precious metals market. We will most likely get there eventually, but we are not there just yet.
The thing that we just discovered is that we see not only the similarity in terms of prices, but also in terms of volume movement. The recent move
higher was not very similar to the previous upswings in terms of price, but the way volume increased and then declined is very similar to what
happened during previous big rallies in gold and silver. In particular, it’s reminiscent of what we saw in 2010 and 2011. Because of both the shape
of volume, and of the way silver stocks outperformed silver (barely). The latter is what differentiates the recent upswing and what we saw in 2016
– back then, silver miners strongly outperformed silver.