Silver on a Roll as Commodities Gain and Green Energy Takes Off

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Silver is in the midst of its longest winning streak in three years as several potentially bullish forces line up.

Silver futures (@SI) are rising for the fifth straight week, their longest rally since early 2017. Volume and open interest have increased at the same time, potential signs of traders building new long positions.

A few things seem to be going on. First has been the modest rally in precious metals after the U.S. Federal Reserve pledged to freeze interest rates. Policymakers are also determined to get inflation over 2 percent. That can help gold and silver because savers often use them to hedge against rising prices.

Speaking of gold, silver’s price is historically low relative to its yellow cousin. As the chart below shows, the gold/silver ratio hit a long-term high around 93 last June. It’s narrowed since, which means silver has been outperforming gold.

Gold (@GC) and silver (@SI) futures, monthly chart, with ratio at bottom.
Gold (@GC) and silver (@SI) futures, monthly chart, with ratio at bottom.

White Metal Goes Green?

Third, the spread of sustainable energy could spur demand for silver. Solar panels use silver for conducting heat and electricity. It’s also finding its way into electric cars.

In case you didn’t notice, solar energy was one of the best-performing parts of the stock market last year as usage spreads. Electric cars are also in focus as Tesla (TSLA) breaks out to new highs and NIO (NIO) gains traction. This up-and-coming industry is expected to keep growing, particularly in China’s smog-choked market.

There’s also some potentially bullish options activity in iShares Silver Trust (SLV). Not only has overall option volume increased, but the upside calls have recently outnumbered downside puts by more than more than 3-to-1.

iShares Silver Trust (SLV), weekly chart, showing option volume and call/put ratio.
iShares Silver Trust (SLV), weekly chart, showing option volume and call/put ratio.

Unlike gold, silver hasn’t broken out to new highs. @SI remains trapped around the same $18.50 level where it peaked in October. That could make some chart watchers fear a drop in the near-term — especially with ADP’s private-sector payrolls report today and non-farm payrolls Friday morning. Strong readings on either could boost interest rates and hurt precious metals.

In conclusion, some potentially bullish factors are lining up for silver. It hasn’t yet given a lot of clear signals. But activity may increase if it starts to break out. Traders may want to keep an eye on it.

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