Silver Charts 18% Gain in August
Silver wrapped up a strong August pushing above the key resistance level of $28 an ounce on Monday.
While gold charted a slight dip of about 0.4% last month, silver was up just over 18%. On Tuesday morning (Sept. 1) the white metal was knocking on the door of $29 an ounce.
The falling dollar has given both gold and silver a boost. The dollar index dropped to a 2-year low on Monday and charted its fourth straight monthly decline. A technical analyst for FXEmpire said he doesn’t see any significant pullback in the silver price on the horizon unless the dollar reverses course, and that seems unlikely given the level of money printing by the Federal Reserve.
It is not until the US dollar changes this trajectory overall that we will see any significant pullback in silver. With the Federal Reserve doing everything it can to flood the markets with liquidity, it is very difficult to imagine a scenario where silver suddenly fall support, as precious metals will be a great place to protect yourself from devaluing of the greenback, as well as many other currencies around the world. After all, all central banks are loose to say the least, and I think that is only going to continue to be a major problem for currencies.”
Despite its big August gains, silver remains historically undervalued compared to gold.
Even with a big correction after pushing above 2,000 an ounce, gold continues to trade above its previous record price back in 2011. But silver is still more than $20 below its all-time record high.
The white metal has a double-top of around $50. It first got to that level in 1980 and then again in 2011. Peter Schiff said $50 is the real resistance level. Once it breaks through, it will go much higher.
Fifty-dollars looms very large. But there’s an old saying about these double-tops. I think they’re made to be broken, and silver is going to break this double-top. And the fact that it’s been there for so long means that when it does break — look out!”
The silver-gold ratio has closed significantly over the last two months, falling just under 69-1. But it remains high by historical standards, signaling that silver has more ground to gain.
The silver-gold ratio is simply the number of ounces of silver it takes to buy one ounce of gold. It has been historically high for months. It was well over 100-1 back in March. The modern average over the last century has been between 40 and 60-1.
Silver is much more volatile than gold due to its industrial role, but at its core, it is still a monetary metal and it tends to track relatively consistently with gold over time. When gold goes up, it almost always takes silver with it. In fact, silver has historically outperformed gold in a gold bull market.
The supply and demand dynamics also look good for silver. Investment demand has skyrocketed and supply is down. Mine output was hit hard by shutdowns due to the coronavirus pandemic, but silver production was already on the decline with mine output dropping four straight years.
Industrial demand has been flat due to the economic slowdown from the coronavirus pandemic. Even so, there are expectations of increasing industrial demand, particularly in the solar energy sector. Even if the global economy is slow to recover, silver may get a boost from government stimulus as various programs funnel money into “green energy” projects.