Silver Pullback Offers Opportunity

With the current weekly cycle low taking shape in silver, traders may be looking at a short term opportunity to the upside.

From a technical standpoint, the signals for a weekly cycle low are:

1. Forming within the expected timing window
2. A bullish momentum cross, which can be seen in indicators such as the DSS Bressert
3. A swing low pattern
4. A trendline break

Looking at the weekly chart below, we are within the expected timing window, with a bullish momentum cross appearing to form on the DSS, a swing low pattern taking shape, and price pressing against the downward sloping trendline drawn from the daily candle closes. While we do not yet have a confirmed weekly cycle low, we do have a high probability candidate forming.

At the very least, a weekly cycle low can present a short term opportunity, even in a weaker scenario where it left-translates, with the peak forming to the left of the midpoint, and then fails by breaking down to a lower low. In the stronger scenario, it offers an opportunity to position for the medium to long term.

With silver only halfway through the broader macro eight-year cycle from 2022 to 2030, it is reasonable to argue that even if this weekly cycle produces a lower low later this year, the current pullback still presents an opportunity within the context of that larger cycle.

Finally, with the gold-to-silver ratio sitting at 63, and with expectations that this ratio will decline over the decades ahead, any pullbacks in silver this year, while the ratio remains above 50, appear to present attractive long term opportunities to dollar cost average into the market.

The chart above shows how the gold-to-silver ratio, shown in light blue, behaved over the current 80-year socioeconomic cycle known as the Four Turnings. The previous Fourth Turning, which ended with World War II, saw the ratio fall sharply after its completion. The gold-to-silver ratio then spent 40 years below 50, which aligns with expectations for the period from 2030 to 2070.

Accumulating silver on pullbacks while the gold-to-silver ratio remains above 50 could prove to be a centennial trade, particularly for those thinking in generational terms. A slow and steady dollar cost averaging approach allows investors to take advantage of market pullbacks as they arise.