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The Outlook For COMEX Silver Improves

Craig Hemke
|
August 21, 2019 - 9:10am

Craig Hemke, TFMetalsReport.com

While we've been on the record since January in predicting that 2019 would see the best annualized gains for the precious metals since 2010, we've also been concerned that COMEX gold might pull away from COMEX silver in the short term. Now? Maybe not so much.

Two posts from earlier this year that you should review before continuing:

 This from January: https://www.sprottmoney.com/Blog/gold-and-silver-2...

 This from May: https://www.sprottmoney.com/Blog/recalling-2010-cr...

Over the past few weeks, I've often stated in public interviews that an expansion of the Gold:Silver Ratio to 100 would not surprise me—meaning that COMEX gold could go to $1700 while COMEX silver remains near $17—before a "substitution effect" finally forces The Banks to retreat and silver moves higher. While this may still be the case, a couple of changes over the past few weeks have led me to consider a different, short-term outlook for COMEX Digital Silver.

Let's start with that substitution effect. What does that mean? See below, from Investopedia:

 

With the substitution effect in mind, please read these articles as a pending and possible example of this paradigm as it relates to gold and silver: https://www.ndtv.com/business/gold-prices-at-recor... & https://www.reuters.com/article/silver-gfms/indian...

As you know by now, gold is making new ALL-TIME highs in nearly every fiat currency—except the U.S. dollar. Whether it's Canadian dollars, British pounds, Australian dollars, Indian rupee, or any of about sixty-five other currencies, the price of gold has been soaring. This is great, and this will continue as gold serves its ultimate purpose as wealth protection against the destructive policies of the global central bankers and politicians.

However, silver priced in those same currencies is FAR FROM all-time highs. Will the substitution effect move to close this gap in relative performance? See the charts below, courtesy of Bullion Star.

Next, consider the Commitment of Traders data for COMEX Digital Silver. Much has been made recently of COMEX gold's CoT data, with open interest and Spec/Comm positioning being near all-time highs. While COMEX silver has an open interest total that is also near all-time highs, the internal positioning is nowhere near historic levels. In fact, over the past four weeks, as price has rallied $1.20, the CoT positioning in COMEX silver has remained relatively unchanged.

At the most recent price peak near $21 in August of 2016, the Large Specs in COMEX silver achieved a NET long position of over 96,000 contracts while the Commercials were NET short more than 107,000. As of last week? The Large Specs are NET long just 39,000 contracts, with the Commercials NET short 65,000. Clearly there's some room to expand here, despite the total open interest being in excess of 230,000 contracts.

And finally, check the recent breakout on the weekly chart! Back in late June, we printed the chart below showing three MAJOR lines of resistance just above price, which at that time was near $15.30. 

But look at what has happened since! In July, COMEX Digital Silver closed above the September 2016 trendline for the first time ever. It then successfully managed to break above its 200-week moving average. And now it has broken above the major and most important trendline that defined the bear market that began in April of 2013.

In closing, the price of gold in dollar terms is already up more than $200 year-to-date, and as we predicted in January, well on its way to the best gains since 2010. However, silver has lagged, but it may be about to play catch up. A move now toward $18.20-$18.50 will set up a late year push toward $20 and a 25% gain for 2019. More gains will follow in 2020 as central bankers resort to negative interest rates and additional quantitative easing in order to prop up their failing economies. 

About Sprott Money

Specializing in the sale of bullion, bullion storage and precious metals registered investments, there’s a reason Sprott Money is called “The Most Trusted Name in Precious Metals”.

Since 2008, our customers have trusted us to provide guidance, education, and superior customer service as we help build their holdings in precious metals—no matter the size of the portfolio. Chairman, Eric Sprott, and President, Larisa Sprott, are proud to head up one of the most well-known and reputable precious metal firms in North America. Learn more about Sprott Money.

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities. Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

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