Gold and gold stocks have gotten all the attention over the past few weeks – for good reason.
Gold is up over $100 per ounce since the beginning of February…
The VanEck Vectors Gold Miners Fund (GDX) is up almost 17% – in just one month…
So, it looks like this is just the beginning of a major move higher for the precious metal stocks.
But while everybody is watching the gold sector and trying to decide if they should chase the stocks higher into overbought conditions, there’s an even better opportunity shaping up in the silver stocks.
Let me explain…
Gold and silver tend to move in the same direction (as do gold and silver stocks). But silver is a little slower to get going.
When people get interested in buying precious metals, the first and most obvious metal they turn to is gold.
Then, once gold and gold stocks have popped higher and reached overbought conditions, buyers look for opportunities in other metals. That’s when silver gets the chance to play catch up.
We’re approaching that chance right now.
We started this week with the average gold stock up about 10% so far in 2022, while the average silver stock was down 5%. But it looks like that’s about to change.
Take a look at this chart of the Global X Sliver Miners Fund (SIL) – an exchange-traded fund (ETF) holding stocks in major silver mining companies…
This chart appears to be forming an inverse head and shoulders pattern.
The head of the pattern is the late January low at $32 per share (H). The two shoulders are the January low (left S) and yesterday’s low near $34 per share (right S).
If this pattern plays out, then SIL should find support near the current price (around $34).
It should immediately rally back up towards resistance at $37 (the neckline of the pattern). And if SIL can break out above $37, then the objective target of this pattern is the November high near $42.
Adding strength to the bullish argument is the fact that SIL has made a recent series of higher lows. And the various moving averages are shifting into a bullish configuration – with the short-term exponential moving averages (EMA – red and green lines) crossing above the long-term 50-day moving average (MA – blue line).
The last time the SIL chart showed a similar setup in the moving averages was last April, just before SIL bolted 20% higher in about a month. A similar move this time around would have SIL trading above $40 per share by the end of March.
Of course, there’s no guarantee it’ll play out this way.
But given the recent strength in the gold mining sector, it’s likely just a matter of time before the silver stocks start to play catch up.
Best regards and good trading,
Editor, Market Minute