If This Happens, Silver Mining Stocks Could Soar

Silver mining stocks are still undervalued even as the S&P 500 turns positive for the first time this year. Despite some positive news regarding the U.S. economy, there is still a raft of economic reasons why investors should not be lulled into a false sense of security. In fact, because of ongoing volatility on the stock market, silver mining stocks remain one of the best opportunities out there.

Silver Prices Higher Because S&P 500 Turning Positive

Silver prices remain bullish, up 13.25% year-to-date and trading near $15.60 an ounce. Silver is at its highest level in five months and has been testing support near $15.25 per ounce.

On top of that, the 50-day moving average (MA) for silver is closing in on the 200-day MA. In technical terms, this event, where the 50-day MA crosses upward to above the 200-day MA, is a bullish sign called a golden crossover.

                                                  Chart courtesy of www.StockCharts.com

The rise in silver prices comes at a time when the S&P 500 has turned positive for the first time this year. After a brutal start to 2016 (by mid-February, the S&P 500 had lost more than 10% of its value), the index has rebounded and has technically wiped out earlier losses. But only just—it’s up 0.02% so far this year.

Why the euphoria on Wall Street? And why are precious metals like silver and gold trending higher? Precious metals usually have a negative correlation to the direction of the stock market.

Has the economy turned a sustainable corner of economic growth? Nope; it’s quite the opposite, actually. The S&P 500 is showing renewed strength the day after the Federal Reserve lowered its expectation for the number of interest rate hikes this year. (Source: Federal Reserve press release, Board of Governors of the Federal Reserve System web site, March 18, 2016.)

In other words, the U.S. economy is not healthy enough to sustain a round of interest rate hikes. Cheap money will continue to flood the stock market. Well, for at least another month, maybe longer if history is any indication.

The Federal Reserve pointed to the continued slowdown in China, while most other major and emerging economies remain weak. Furthermore, inflation is expected to remain low near-term due to collapsing oil prices. Again, in other words, the economic outlook remains bleak.