With the gold price breaking out of its month-long symmetrical triangle this week, silver has also decided to join the gold party. As mentioned in this column previous week, silver equities had been telegraphing this move for the past month and the metal finally received the message this week.
Since the deflationary panic to cash ended in mid-March, the Global Silver Miners ETF (SIL) has been rapidly closing in on its highest level in three years. Both SIL and the junior silver stock ETF (SILJ) have participated in the sector strength while both have also outperformed silver, and SIL has dramatically outperformed the metal.
Moreover, most pure-play silver junior stocks are up double digits this morning and have begun to catch up with global gold miners which have already broken out of huge basing patterns. Many of the riskier juniors have formed bullish inverse head & shoulders patterns on their respective charts, while having reached or exceeded the neckline.
Throughout previous gold bull markets, along with this one, the higher risk silver and precious metal junior sectors have mostly traded in tandem while lagging the gold complex. Although this occurrence has frustrated resource speculators since the bear market in the junior space began in 2013, there have been more than a handful of junior success stories to keep them interested, but not fully committed.
However, the patience of long-term speculators in this volatile arena is beginning to pay off. And despite the huge moves off major lows, there is still plenty of time to get into this sector before the real fireworks begin. Once silver breaks out above long-term resistance at $20, I expect the “Fear of Missing Out” (FOMO) stage to begin, as we are still in the early stages of what I believe to be a new miner bull cycle.
Once this new floor has been created in silver, the junior sector will reward speculators who have accumulated long-term holding positions on weakness in quality companies before the metal has done so. Although the current move in the mining complex has become overextend, corrections will be short and sharp buying opportunities as the GDX moves towards its ultimate impulse move target of $50.