Monitoring the Relative Trends in Silver Miners

From the desk of Louis Sykes @haumicharts

Whenever we want to gauge animal spirits in the precious metals space, we resort to our trusty intermarket ratios.

Two weeks ago in our Gold report, we covered the notable bounce we were witnessing in the Silver/Gold ratio, pointing to brewing risk appetite within this space. And this week, we outlined a bullish trade in the iShares Silver ETF off the back of this recent momentum.

But when we take this relationship one step further, we see a similar situation in the relationship between Silver and Gold mining stocks.

Here's a long-term weekly chart of this ratio:

Silver mining stocks are at their lowest levels since the inception of the fund relative to their less-volatile and lower beta Gold mining counterparts. This would be a very logical place to see a bounce in this ratio. Especially with momentum diverging on these most recent lows, if there were ever a place for Silver miners to see some relief on a relative basis, this would be it.

Now, to be clear, the primary trend has been lower for some time now. So it's likely we're not going to see an immediate trend reversal in a matter of weeks; downtrends like these often take years to reverse.

But crafting a bullish thesis around this relationship -- with Gold testing all-time highs and a new potential bull market in precious metals around the corner, it wouldn't be irrational to suggest that the higher beta of the two would go on to outperform.

In fact, this ratio moving higher would indicate the kind of bullish risk appetite we would expect to accompany a new bull market in precious metals.

In either case, we have a clean level to monitor as to whether we see some movement in the opposite direction we've become accustomed to in this dynamic.

COT Heatmap Highlights

• Commercial hedgers are less than two percent from another record-long position in palladium.
• Commercials are within five percent of their most significant long position for Corn in three years.
• And commercials move within eight percent of a three-year record-long position in the Crude Oil.  

Click here to download the All Star Charts COT Heatmap.