Silver Squeeze & GSR Show Price Rise Promise

There has been endless press of late around the global shortage in investment silver against rampant demand. Mints and refineries around the world have extended wait times and increased premiums as they struggle with supply and demand. And whilst, per the first chart below, the silver price is responding by breaching its 200 day moving average for the first time in nearly 6 months it is still relatively low (refer to the bottom chart) particularly in the context of the supply demand dynamic at present. Current news items such as Glencore dramatically cutting production just adds to the supply squeeze.



Whilst some may argue breaching the 200 day MA indicates ‘over bought’, another always instructive metric is the gold silver ratio which indicates otherwise. Whilst we have previously reported on its high level in terms of its average (c45) over the last century, we don’t normally ‘zoom in’ as the next chart shows where we see its performance against, in this case, the 20 month moving average (MMA) over the last 20 years.



Previous instances of such protracted breaches of the moving average preceded strong uptrends in the silver price as can be seen below. So whilst the silver price has responded to the current supply / demand squeeze, it still has plenty of scope for higher moves particularly in the context of current continual poor global economic projections.

 

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200 day moving average is better for stocks. It's an indicator of what a company is doing. Companies are always changing, cutting deals, improving (or destroying) margins, etc...

A moving average on a commodity doesn't really reflect this. In fact it only shows a short data point out of the norm. An anomaly as it were.

Seasonal changes with precious metals also show good improvement during the fall/winter months due to the increased demand for items not bought throughout the year - during the holidays (jewelry, coins, silverware, etc) that although are not huge draws - do create an increase in demand over the norm.

This year's warm weather will add to the mining season for the west coast - not sure what it will do nationally or internationally. It should provide a small increase in supply - regardless of what the press is saying.

I still think we're at the bottom, coasting along and possibly past it - but a 200 day moving average is not a good judge of the PM market imho.