Silver Prices Are Surging Past These Thresholds. It Could Be a Warning.

The price of silver has more than doubled this year. (Ore Huiying/Bloomberg)

Key Points

• Silver prices are at multiyear highs, with the iShares Silver Trust 22.6% above its 50-day average and 59.9% above its 200-day average.
• Sundial Capital Research notes the current deviation from averages is “historic,” signaling a potential reversal, similar to drops of 21.9% in 2020 and 25.8% in 2011.
• The silver market is described as a “widow-maker” due to its volatility and unpredictability, prone to significant price moves that can eliminate leveraged investors.

Silver prices are surging to multiyear highs, but they are also flashing a warning signal for silver investors.

The price of silver as tracked by the iShares Silver Trust closed at $59.32 on Thursday, which is 22.6% higher than its 50-day moving average. On Wednesday, it was 25.3% above that threshold, according to Dow Jones Market Data.

The price was 59.9% higher than the 200-day average of $37.11 on Thursday after jumping to 63% above that threshold on Wednesday.

Sundial Capital Research called the level of deviation from these thresholds “historic” and a potential signal that a reversal is coming.

A similar dynamic occurred in August 2020, after which silver prices fell 21.9% in subsequent months.

The last time before now that conditions were so extreme was in April 2011, after which prices plummeted as much as 25.8% in the following months, the Sundial analysts said in a research note. Silver prices “remained deeply in the red a year later (-29.6%).”

Silver prices have more than doubled this year, from $26.93 on Jan. 2.

Sundial wrote that the silver market is caught in “an intense tug of war between short-term momentum and long-term gravity.”

Trades or investments that can result in potentially catastrophic losses are called widow-makers in financial markets. “Silver has long been know as the ‘widowmaker,’ similar to natural gas,” the analysts wrote.

“It is an infamously elusive, volatile, and unpredictable market—relatively small in size, yet prone to jaw-dropping price moves that can wipe out leveraged investors entirely,” they said.

Trading against extreme market moves yields returns about three-quarters of the time, but the one time it doesn’t “can be fatal because the market will eliminate all capital that stands in your way.”

They wrote that investors trying to establish a position in the silver market should do it in a risk-controlled way that allows them to express their outlook on the market without exposing their accounts to excessive risk in case of a “once-in-a-century abnormal move in silver prices (such as the current market conditions).”

Write to Janet H. Cho at janet.cho@dowjones.com