Everyone wants to know if the gold bull market is petering out or when it will end. In my experience, gold bull markets don’t end UNTIL another precious metal has an absolutely blow off top.
That other metal?
Silver. As I’ve written before, silver tends to be much more volatile, and the end is always as explosive – and fast – as any other asset in the market. With silver spiking again, you might be wondering if we’re getting close to that blow off top… but I don’t think so.
First, I’ll discuss the physical metal market – and show you how silver tends to lag gold until the end – then soaring for a day or two, and absolutely collapsing afterwards, which typically marks the end of the secular bull market as well. Then, I’ll get into another indicator that will definitely spell the end of the gold bull.
The last two silver boom/busts occurred in 2011 and 1980. Both showed silver lagging returns in gold, before very quickly marching up for a short period, and then crashing along with gold.
Silver’s had a good year so far, but over the past year, it’s still well underperformed gold’s move.
Gold is up over 40%, but silver is only up 24%.
Silver is still undervalued, trading for only $38/oz, which is a 13% discount to $43/oz fair value based on a regression vs Gold since 1970. We are still a long way from a silver peak based on this regression vs gold. At prior silver peaks over the past 50 years, seen in 1980 and 2011, silver topped out at 160% of fair value based on the regression vs the gold price. Silver would need to rise to $70/oz to reach at least a 160% premium to the gold price.
We’re not even close to a blow-off top in the metal…
But there’s another measure I like to use to look at where silver stocks are headed. I look at what tend to be the riskier silver miners in the market. My bellwether at the moment is First Majestic Silver (NYSE: AG).
Take a look at First Majestic Silver price vs its 200 day moving average (DMA) below. When Silver got rolling in 2011, First Maj spiked to $25.61 per share on 4/5/11 which was 600% greater than its 200 DMA of $3.61 per share.
First Majestic was a leader in the silver space for years.
It lost its way with the ill fated $500 mil acquisition of Jerritt Canyon in 2021, pourin another $100 mil into Jerritt since acquisition.
This profitless spend resulted in a hole in First Maj’s balance sheet that was filled by dilution. The minimal dividend and simultaneous share repurchase program and ATM share sale facility was an insult to investor intelligence.
But for now I’ll use First Majestic as a silver miner stock proxy. First Majestic began making highs above $5 per share in September 2010, and peaked out eight months later at $25 per share in April 2011.
The GDX Gold stock ETF peaked out then as well, before rising again to make a final peak in September 2011.
The big runs in 2011, 2016 and 2021 all lasted at least a year from undervaluation to a top marked by extreme overvaluation.
First Majestic is only trading for $8.46 per share. That’s only a 9% premium to its 200 DMA of $7.76. First Majestic is still well within its average range, far from any price extreme. Based on First Majestic’s price action we are again at least a year from any silver or gold price top.
I know it’s tempting to look for an exit and to take money off the table when things are going well. Sometimes the hardest thing is to stay pat while a bull market moves higher – especially when it moves higher than what you think is a fair valuation. But that’s what tends to happen during pretty much every bull market, in every asset!
The crowd joins in and bids prices up higher than any reasonable person might expect. But we’re not there yet.
And so far, gold has done well. Silver has simply followed gold higher. We’re not yet at a “bubble” moment or a blow off top.
Silver has been rising smoothly every quarter. Gold and silver will continue higher until silver surges disconnecting from the gold price.
We will also see the bubble form when First Majestic begins to climb higher. There’s going to be a time when gold, silver and their stocks are overvalued. We’re definitely not there yet. We are in the biggest gold bull market of our lifetimes.
Stay invested and wait for silver volatility to explode higher. When Silver inevitably breaks out, we will be monitoring its valuation vs gold. When we see Silver trade at a massive premium to fair value based on the gold price, which will also drive First Majestic Silver multiples higher, it will be time to be cautious.
The takeaway: A rapid move in the silver price has marked every major precious metal price peak since 1970, so until silver spikes dramatically higher…chill out, and enjoy the ride, and your profits.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio