Silver Will Eventually Catch up With Gold

Silver Will Eventually Catch up With Gold by PRZEMYSŁAW RADOMSKI, CFA for Sunshine Profits

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Is silver just an industrial metal?

Not only an industrial metal, and not just any industrial metal. It served as money for centuries, much longer than the fiat currencies have been used. Its specific properties are also widely used in many industries (best conductor of heat and electricity), and perhaps the only more versatile commodity than silver is crude oil.

The first verse of the Correlation Matrix shows just how closely silver moves along with gold – the flagship monetary metal. The link is not particularly strong in the long run, but it is still strong enough despite that.

And what about the link with copper – which we’ll use as a proxy for the industrial metals?

There are times when silver and copper move in opposite directions. However, merely stating that they move in adverse directions for a few days is not particularly informative. It is just a very brief move that is being examined, and both moves could have been just random noise.

Just like the existence of snowballs doesn’t negate the fact that ice caps are melting at an accelerating rate, observing just a few days when silver and copper move in the opposite directions doesn’t mean that they will move in the opposite directions for longer.

Taking the last few years into account, there were periods when silver moved together with copper (recently) and periods when it moved in the opposite direction (in late 2016).

There were also times when both markets moved relatively independently from each other, and there were times when one market led the other. The latter would be quite informative if it wasn’t for the fact that sometimes silver leads copper, and sometimes it’s the other way around.

The bottom part of the above chart tells us that copper and silver are positively correlated for most of the time, but the link is far from being carved in stone.

So, what can the link between copper and silver tell us? Exactly what we wrote previously. Namely, silver is an industrial metal, but not only that. It’s also a monetary metal. In other words, silver has a dual nature.

What does the above mean from here on out? That its performance could be less than perfect if the general stock market slides, but it will most probably catch up with gold in a major way, once stocks finally bottom and start to climb once again.

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Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager

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Sunshine Profits

Sunshine Profits is built around the belief that we are in a secular bull market in all commodities and that precious metals will be among its greatest beneficiaries. Having established long term trends, our investment strategy focuses on evaluating low-risk entry points, as well as timing potential tops. "Does something really work over the long run?" -- that's the big question we strive to answer. We're proud of the value that SP proprietary indicators, tools and weekly market analysis bring to our customers. We are proud to be the first to find important, but still largely unknown relations, that influence gold prices, such as the one combining seasonal tendencies with expirations of derivatives. We understand that quality doesn't come cheap. We spend many, many months on research and development of each of our tools -- and we leave nothing behind, we give our best to you. That's why, as our valued customer, you can be confident: what you get from us is always of greatest quality, usefulness and profitability.