One of the many misconceptions about the proper way to trade in silver markets lies in the fact that so many investors view silver assets as nothing more than a secondary precious metal. However, recent trend movements in the iShares Silver Trust (NYSEARCA: SLV) suggest that these long-term views might be ready for a revision.
In recent weeks, market uncertainties revolving around the destructive coronavirus pandemic have inspired incredible gains for the metals complex and SLV has seen rallies of as much as 58% since March 2020. All of this new bullish activity lends credence to SLV as a true value play for commodities traders that is also capable of generating sustained gains as long as macroeconomic uncertainties and financial disruptions continue to devastate global markets.
To put this into a more relative context, commodities traders might be aware that trends in the gold/silver ratio have recently recorded massive reversals after reaching record highs on March 18th, 2020. Essentially, this reversal occurred as the market’s underlying silver prices fell to $11.94 and changes in the gold/silver ratio meant that one troy ounce of gold was worth nearly 127 troy ounces of silver.
However, the gold/silver ratio has already fallen back into the 90s and this suggests that trend momentum currently favors a bullish outlook for SLV when compared to the SPDR Gold Trust (NYSEARCA: GLD). Of course, I have maintained a bullish viewpoint on both instruments for an extended period of time. But the potential for upside in the iShares Silver Trust remains much more obvious, given the underlying reversals we have recently seen in the price ratios that guide GLD and SLV valuations.
At this stage, it’s clear that opportunities in silver should not be viewed as “secondary” to the opportunities that are currently found in gold markets. Bullish price performances in silver during the second-quarter period seem to be validating these assertions in a broader trend that adds even greater potential for SLV to outperform against most of the fund-based trading instruments that are currently found in the commodities space.
Going forward, macroeconomic correlations will continue to be significant because they will give commodities traders an indication of which asset classes are likely to benefit from renewed volatility in global markets. Recent fund flow activities in SLV have remained stable over the last one-year period, as the iShares Silver Trust has seen total net inflows of $2.8 billion. Ultimately, this bullish activity makes it much more difficult for bearish investors to dismiss silver an industrial metal that is incapable of posting rallies once above-average volatility levels become visible in stock markets.
Whenever investors are making an attempt to understand prevalent misconceptions in the financial markets, it is critical to analyze multiple asset classes and determine whether traditional correlations remain valid. In this case, it is quickly becoming obvious that SLV has an excellent opportunity to become something more than simply a “secondary” asset that always fails to receive as much attention as GLD. In reality, recent price rallies in the iShares Silver Trust have made it clear that long-term trends have reached extreme levels and are ready to reverse.
With recent trend reversals in the gold/silver ratio gaining in momentum, we could see SLV bulls in a strong position to outperform relative to many of their commodities counterparts. Since the middle of March 2020, the iShares Silver Trust has already experienced rallies that would have been thought of as impossible just a short time ago and this makes it a great time to learn how to trade CFDs in silver markets. Bullish investors have been decisive in response to updated assessments of the global economic outlook for the post-coronavirus era and recent rallies in SLV show that all precious metals assets still hold a commanding position as the market’s most important safe-haven instruments.
Richard Cox is a personal investor with more than two decades of experience in the financial markets. He is a syndicated writer, with works appearing on CNBC, NASDAQ, Economy Watch, Motley Fool, and Wired Magazine.
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