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Asset Watch
Thursday, April 6, 2023
With the recent banking crisis being music to the bulls’ ears, JPMorgan CEO Jamie Dimon – who heads the largest U.S. bank – added fuel to the fire with his annual letter on Apr. 4. He wrote:
“The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.”
Yet, while precious metals like silver have benefited from the fear, should you sell into this rally?
Though silver is on track for a four-week winning streak, prior bouts of optimism have ended in ruin. The royal blue line represents silver’s 50-week moving average, while the light blue bars at the bottom measure the distance between its current price and its 50-week MA.
If you analyse the right side of the chart, you can see that silver is trading 18.14% above its 50-week MA, and prior readings of this magnitude have preceded sharp drawdowns. In 2016, 2019 and 2023, outperforming the 50-week MA by 12% to 30% was followed by breakdowns below the key technical level.
Plus, while silver soared 56% above its 50-week MA in August 2020, it occurred alongside record-low interest rates and record-high quantitative easing (QE). As a result, unless you expect the Fed to ease substantially in the months ahead, the risk-reward seems unattractive at these levels.
So, is caution warranted, or has silver’s bull run only just begun?
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