Amid rising uncertainties for the global economy — as well as lingering geopolitical tensions and flashpoints — it's no surprise that gold has witnessed a record-breaking spike in market value. Still, those interested in precious metals may consider a similarly in-demand asset: silver. Billed as both a store of value and a powerhouse of industry, silver's demand profile could intrigue retail investors.
Closely linked to gold, silver's relative rarity and desirability have historically led to its use as a store of value. As such, investors who wish to gradually protect their wealth from the effects of rampant inflation may find the silver narrative appealing. At the same time, the framework that has really gotten Wall Street's attention is demand from industrial sectors.
Thanks to silver's versatile properties — especially in the realm of electrical and thermal conductivity — the precious metal undergirds multiple sectors, including electronics and photovoltaics. Furthermore, the commodity's antimicrobial properties make silver valuable in various medical applications, including wound dressings, medical devices and coatings for surgical instruments.
Not surprisingly, structural deficits stemming from the combination of heightened industrial consumption and lack of corresponding accelerated productivity have translated into the global silver supply being unable to keep pace with demand for seven consecutive years. The situation may not improve materially since industrial demand now accounts for 59% of silver usage.
Given the paradigm shift in the precious metals ecosystem, silver has become one of the hottest tradable assets. Since the beginning of the year, the spot price of silver has risen roughly 30%. Naturally, bullish investors will be looking for clues regarding sustained momentum, while more skeptical market participants may be concerned about a potential correction.
Interestingly, in the trailing 10 weeks since the close of Aug. 26, the balance of accumulative sessions and distributive sessions for the silver spot price match: five up weeks, five down weeks. During this period, silver saw an uptrend. For classification purposes, this sequence can be abbreviated as 5-5-U.
Conditionally, the drift associated with this quantitative signal (using data going back to January 2019) implies an upside target of $41.65 and a downside target of $38.11 over the next 10 weeks. In contrast, the historical drift — assuming no particular signal — may carry spot silver to a high of around $42.32 and a low of $37.24.
Given the lack of variance between the conditional forecast (of the 5-5-U signal) and the "normal" baseline forecast, ascertaining which outcome is likelier is extremely difficult. Technical analysts often say that the trend is your friend. In that case, there is legitimate reason to believe that spot silver can march higher.
However, trends eventually bend — and a corrective spell after a robust rally is also a very reasonable proposition. After all, if upside channels never broke down, there would be no such thing as a bear market. Obviously, that's never been the case with the capital markets.
Still, while silver itself may not offer too many clues, the silver mining complex may be a different story.
The Sprott ETF: Recognized as a leading financial services provider in the precious metals sector, Sprott Inc. (NYSE:SII) is well known for its expertise in critical materials. For retail investors, Sprott has gained popularity for democratizing convenient and practical access to the resource space, an arena that can be quite opaque.
One of the financial specialist's recent offerings is the Sprott Silver Miners & Physical Silver ETF (NASDAQ:SLVR). According to its prospectus, SLVR is the only exchange-traded fund focused solely on silver miners and physical silver. Overall, the ETF seeks to provide investment results that (before fees and expenses) correspond generally to the total return performance of the Nasdaq Sprott Silver Miners Index (NSLVR).
Fund managers aim to achieve this goal by investing at least 80% of its total assets in the securities of NSLVR. Furthermore, the ETF is diverse, tracking the performance of silver producers, developers, explorers and the metal itself.
While exposure to silver miners can enhance overall performance, it's crucial to note that the mining industry tends to be more volatile than the underlying asset. Much of this potential overhang has to do with miners carrying operational risks that go beyond demand fluctuations for the metal. On the other hand, broad exposure to mining enterprises may help cushion volatility shocks.
The SLVR ETF: Launched in January of this year, the SLVR ETF doesn't have as much statistical data to work with. Nevertheless, by inferring a similar trend to the spot silver price, it's possible to extract a meaningful analysis.
Primarily, the SLVR ETF has benefited from the enhanced performance potential of the mining complex. Since its debut, the silver-focused fund has gained over 58%. Of course, the question now is whether there's still enough in the tank for SLVR to move higher.
From transposing the rate of return of the silver market to SLVR, two pathways emerge over the next 10 weeks: the upside target may aim for $36.54 while the downside target could be looking at $33.44. What could break the decision deadlock is the possible appearance of a cup-and-handle formation.
If this interpretation is correct, then a sustained march higher is possible. However, investors should also note that fading volume trends contradict the rising price action.
