Silver’s New Bull Market: Just the TIP of the Iceberg!

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Submitted by Adam Hamilton: 

This Tuesday, silver surged 4.4% higher on strong Asian bidding in parallel with gold.  The catalyst was fascinating, China finally launching its long-awaited yuan-denominated gold benchmark.  China is the world’s largest gold producer, importer, and consumer, a commanding position that should grant it much bigger say in the gold industry.  The new yuan gold price will ultimately challenge London’s century-old hegemony.

The prospects of more Chinese with their deep cultural affinity for precious metals having easier price discovery and access catapulted silver into bull-market territory.  Its previous best close of 2016 about a week earlier was only 18.5% above its 6.4-year secular low in mid-December leading into the Fed’s first rate hike in 9.5 years.  Tuesday’s big Chinese silver rally boosted this young upleg’s gains to 23.7%.

That propelled silver decisively across that official new-bull-market metric of +20%.  Interestingly, silver was even faring better than gold.  While gold entered new-bull-market territory in early March, at best as of the middle of March it was only up 21.0% from its own mid-December 6.1-year secular low.  While silver got off to its usual slow start, it has already surpassed gold’s gains.  This outperformance will mount.

Silver’s new bull should surprise no one.  Late last year, I extensively discussed the anomalously-low silver prices and this metal’s resulting vast upside potential.  In early October I recommended a new long-term investment in an elite silver producer to our monthly-newsletter subscribers.  As of Tuesday it was already up 208%, a triple in less than 7 months!  I wrote about “Silver’s Deep Undervaluation” in late October.

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The bottom line is silver just entered its first new bull market in at least several years.  This was driven by a combination of speculator silver-futures short covering and long buying, but most importantly major new investment buying.  Silver hasn’t seen investors start to return in years, which makes 2016’s new bull look like the real deal in contrast to recent years’ fleeting short-covering-fueled surges that soon collapsed.

And once investors take the cue from gold strength to start migrating back into silver, the resulting bull markets tend to run for years and grow to monstrous proportions.  With silver just emerging from such anomalously-low price extremes relative to gold, it’s going to take vast buying to mean revert its price back up to normal levels.  So 2016’s young bull is almost certainly just the early vanguard of a massive new bull.

Adam Hamilton, CPA