It’s Elemental

Today we’re looking at a momentum trade in a commodity that’s a member of the periodic table of elements. Number 47, to be exact.

In recent weeks there has been an unusually large volume of buying, which has pushed the price of silver up sharply, yet the gold-to-silver ratio (the number of ounces of silver you can buy with one ounce of gold) remains at unusually high long-term levels, and so it’s probable that a reversion to the mean will occur in the coming years, or sooner, meaning that the recent push higher in the price of silver is likely just the beginning of a longer uptrend.

To position ourselves to take advantage of a sustained increase in the price of silver, we’re buying into the iShares MSCI Global Silver Miners ETF ($SLVP), which, as you’ll see in the below chart, has had a strong uptrend since the end of May, and appears to be holding support above the $10 mark.

iShares MSCI Global Silver Miners ETF ($SLVP) showing recent strength on significant trading volume.

Below is a longer view of the same underlying, going back 10 years.

iSHares MSCI Global Silver Miners ETF ($SLVP) – most recent decade, monthly candles.

In terms of timing for this trade, the more cautious investor will wait until after this week’s Federal Open Market Committee (FOMC) meeting. Although markets have currently priced in about a 100% chance that the Federal Reserve will cut interest rates by 0.25% this coming week, and some pundits are anticipating a 0.5% rate cut, there are others that think recent economic data doesn’t support the argument for a rate cut at all, and so we may well see a brief sell-off in safe-haven assets like gold and silver if no such cut is forthcoming following this week’s FOMC meeting.

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