Summary
- Silver's rally lasted a bit longer than I thought it would when I last covered PSLV.
- But the decline in the metal from $24 down to under $21 has been a welcomed opportunity to scale up the PSLV position $1 below recent highs.
- I wouldn't rule out sub-$20 Silver temporarily, but I continue to add PSLV shares on this dip and would view $6.50 as a gift.
It took a little bit longer than I expected, but two months after calling a retest of the 200 week moving average in Sprott Physical Silver Trust (PSLV), we finally have our buying opportunity having now sold off over a dollar per share from my last PSLV article in late December .
Not only has the price of the underlying metal taken a much needed breather since the run up over $24 per ounce at the end of last year, but even the discount to NAV in PSLV has taken an enormous dive after closing Monday 6.05% below net asset value.
That's by far the largest discount to NAV of 2023 for PSLV shares and it's the biggest closing session discount since the 9.3% discount recorded on June 14th 2022. Keep in mind, the 5 year average discount to NAV for PSLV shares is 2.35% according to YCharts, so even if Silver stays exactly where it is I think you could argue PSLV shares are a buy down here.
Updated Silver Charts
Now at a sub-24 RSI-14 on Silver's daily chart, the metal has become very oversold on the shorter term time frame. A bounce from here is certainly possible.
But I do think any immediate bounce will be fairly short lived as the market is still dealing with some dollar strength as evidenced by the DXY's move up to 105 from under 101 at the beginning of the month.
From a longer term trend perspective, nothing major has been broken yet in Silver's weekly chart and I personally wouldn't start getting nervous about a broken thesis and a deeper selloff unless we see a weekly close below $18.50 in Silver:
Currently, the metal has given up the 200 week MA but it isn't uncommon to overshoot on pullbacks. Taking a glance at the monthly chart, we can get a sense for how aggressive Silver's February selloff has been. The metal is down 13% as of article submission. If it were to close unchanged on Tuesday, this would be the worst month for Silver price performance-wise since September 2020.
But it isn't all bad news. The worst could very well be over if the 200 month moving average turns out to be an area bulls decide to defend. That level is currently $19.92.
A Silver price of $19.92 would put PSLV's NAV at $7.03. If we assume a 5 year average NAV discount of 2.4% is fair, we get a PSLV share price of $6.86. If the selloff continues and Silver re-tests $18.50, we get a PSLV share price of $6.37. If we actually get that price, I'd view it as a multi-year buy opportunity. But to be clear, I'm not counting on that. I think we get one more low, but I have doubts it'll be that deep.
Summary
I still believe that Silver is going to have a tremendous 2023 and that there is a really strong fundamental setup for the metal and by extension for PSLV. Shares of bullion trusts like the ones offered by Sprott are not 100% safe. As I've covered previously, assets held by a third party custodian introduce risk to the equation whether those custodians are reputable or not. Allocating to PSLV in a brokerage account is not the same thing as holding physical Silver in your hand.
PSLV is a claim on physical Silver in the same way a dry cleaning ticket is a claim on a shirt. One says you own a shirt, the other actually is a shirt. it would be wise to view the Sprott shares through the same lens. While PSLV shares are redeemable for the bullion, those redemptions minimums are high and are likely out of reach for most investors. If you want to own physical Silver, it is my view that the best way to own it is to own the real deal. Short of that, PSLV is still my favorite way to get Silver exposure in an IRA.
For further details see:
PSLV: Time To Buy The Dip