Silver investors who pay attention to seasonal trends are sure to be paying close attention to how silver responds this coming November. Silver has followed both gold and the growing stash of negative yielding debt higher this year, rising 13.3% year to date. While silver’s strong performance year in 2019 has made it easy for silver investors to forget a poor 2018 the strength of investor resolve will be tested in November. Particularly so, because silver has declined for six straight Novembers from 2013 to 2018. In fact, since 2011, silver has gained only once in the month of November.
However, I believe that silver is about to put the segment of nasty Novembers behind it. Here are three reasons why:
1) Investors and speculators are buying bullion ETFs
Investors, speculators and macro tourists, who had largely ignored silver over the past seven years are ignoring it no more. In fact, investors have been piling into silver as evidenced by a massive shift upwards in ETF holdings of silver bullion ETFs. ETF holdings of silver now stand at almost 630 million ounces, up 20% in 2019 alone.
The chart below graphically illustrates this point.
We have typically seen investors pile into silver bullion ETFs as a temporary trade. 2019 has been different. Not only have investors bought BIG into the Q3 2019 silver rally, they have not faded the recent weakness in silver prices. As a result, barring unforeseen events, the existing investors are unlikely to be sellers in the coming months.
2) Commodity speculators are not stretching
We typically see meaningful tops in commodity prices when speculators get too long a particular commodity. This is no different as far as silver is concerned. The current snapshot of speculators who are long silver appears to be neutral.
There is also a reliable correlation between speculator positioning and silver prices. The current positioning of speculators appears to be bottoming out which bodes well for silver prices.
3) Further Fed easing is likely
It goes without saying that silver takes its cues from gold. Gold has been consolidating its gains over the past two months as has silver. The next leg up will be driven by further monetary easing. We have been getting hints from members of the Federal Reserve that the not only are lower rates on the cards but another round of QE as well. In a shocking twist (and I say this tongue in cheek), the next round of QE will not be called QE but will have some equally clever acronym is also on deck. Last week’s surprise drop in retail sales and a plummeting ISM manufacturing data can be seen as two more data points to support the easing thesis.
Silver may have declined for six straight Novembers. However, given the paradigm shift we have witnessed in 2019 both in investor sentiment as well as in the macroeconomics and policy areas, we are likely to see that streak get broken. I am bullish on silver.
Disclosure: I am/we are long SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.