by Nico Isaac
Updated: September 01, 2016
I know everyone wants to talk about gold right now, but there’s an equally compelling story to be told in silver!
Silver is, hands down, the “jack of all trades” of the metals world. It wears the dual hat of both a precious and industrial metal and is used in everything from coin-making to microscopes, film development, rear-view mirrors, bacteria-killing medicine, musical instruments, food decoration, jewelry, and on.
Heck, ancient folklore even suggests silver is the one-and-only weapon against vampires and werewolves.
But according to the mainstream economists, there is one thing silver can’t do: It can’t defeat the bearish fundamental forces of a rate-hiking Federal Reserve and languishing demand.
Case in point: Back in late 2015, silver prices were entrenched in a multi-year bear market and circling the drain of a six-year low. The “poor man’s gold” had just capped its longest losing streak since data tracking began – in 1950.
Also, holdings in silver-backed exchanged traded products (silver ETFs) stood at a two-year low.
And, according to the usual news-following brain trust, a huge, cumulonimbus-sized black cloud was overhead in silver’s future: the first rate hike by the U.S. Federal Reserve in nine years – greenlit on December 16, 2015.
Here’s how the popular news outlets framed the bearish event: A rate hike is bad for non-yield-bearing assets like gold. And what’s bad for gold is bad for silver.
“The commodities perhaps most likely to struggle in the wake of the Fed tightening would be gold and by association silver.” (Wall Street Journal)
Added another news source:
“Silver Teeters on Record Losing Streak as Traders Flee Metals...The commodity is taking a double hit: there’s diminished demand for precious metals given the likelihood for higher U.S. interest rates, and less need for silver’s industrial applications as China’s growth slows.
“Silver is either seen as aligned to gold or aligned to industrial metals and right now, both stories suck.” (Bloomberg)
But here’s the unlikely twist in our narrative – the Fed’s rate hike last December wasn’t the only factor in determining silver’s fate.
In our opinion, while news events like the first rate hike in nearly a decade can cause temporary “shocks” to a market’s trend – the larger, unyielding force driving prices is investor psychology, which unfolds as Elliott wave patterns directly on price charts.
Back in December, in fact, the Elliott wave pattern unfolding on silver’s price chart told a story all right – but not the “sucky” one many expected. Quite the opposite: Our story saw silver – along with gold – nearing the end of a multi-year ending diagonal wave pattern.
As a terminating wave pattern, the ending diagonal suggested silver was about to embark on a powerful rally. Here, our December 2015 Elliott Wave Financial Forecast set the Bullish stage:
“Gold prices are in the late stages of an ending diagonal, which, when complete, will finish a five-wave decline from the September 2011 peak at $1921.50.
“As for silver, with world-wide economic measures weakening, the industrial component of silver continues to show muted demand. Still, gold and silver’s main trends align, and when gold starts to rally, silver should too.”
On December 14, silver prices touched bottom at a six-year low of $13.62 per ounce. That day, our December 14 Short Term Update illustrated the ending diagonal pattern on silver’s price chart and re-emphasized its bullish implications:
“So far, [Silver] has ignored gold’s positive performance with a decline to a new low and a close today at $13.76. But silver should hold above $13.40 and move higher in conjunction with the rally in gold.”
Our December 16 Short Term Update added:
“Silver rallied sharply today, which should be the start of a multi-month advance, similar to gold.”
From there, silver rocketed past gold in a jaw-dropping 50% rally to its highest level in two years – while the yellow metal soared an equally respectable 28%.
Silver’s winning streak hit a wall late this summer.
Whether silver’s summer doldrums are set to continue into fall – along with gold, for that matter – is not a question you will find answers to in the Fed’s next rate move.
The only objective insight into the near-, and long-term trend-changes in store for silver and gold come from the price charts themselves.