Silver Miners ($SIL) Looking to Rally

One of the best performing assets this year is Silver. After bottoming on March 18 at $11.6 in the Covid-19 selloff, the metal has rallied to $30. Silver miners should benefit from the higher price of silver. As long as the price of Silver can stabilize at this upper twenty range or extend higher, we could see silver miners stocks to continue the out performance.

One of the convenient ways to invest in the Silver mining companies is through Global X Silver Miners ETF (SIL). This ETF can provide investors efficient access and effective diversification to a basket of silver mining companies. The mining companies provide a leveraged exposure to the underlying physical metal. So if silver is up, the miners tend to be up more.

SIL however also carries a lot more volatility that the underlying silver. In several weeks in March, SIL plummeted more than 40% as Silver crashed due to the Covid-19. The ETF collapsed 27% in the final trading days alone. Silver then made a V-shape bounce since then and rallied 158% while SIL more than tripled from $16 to $52.9 for 230% rally. The leverage is still quite weak at only 1.45x.

Q2 has proved to be very challenging for many primary mining companies due to the coronavirus-driven shutdown. Mexico, the largest silver producing country, suspend mining activities for 60 days in the second quarter.  However, mines have now operated again after the government deems the mining industry as essential and critical.

As long as the operational challenge is solved and silver price can maintain the new higher base or go even higher, Silver Miners have a chance to extend higher.

SIL Monthly Elliott Wave Chart

Silver Miners ($SIL) Monthly Elliott Wave Chart

Silver Miners ETF (SIL) Monthly Chart above shows that the rally to $94.03 on April 2011 ended wave ((I)). The correction in wave ((II)) ended at $14.94 on January 2016. From there, SIL is forming a base for the next move higher. Wave ((III)) is now in progress which should continue in the next few years. Up from wave ((II)), wave I ended at 54.34 and wave II pullback ended at $16 during the Covid-19 selloff. Dips from this point should continue to be supported in the sequence of 3, 7, or 11 swing for more upside.