The silver price and the US Dollar/South African Rand exchange rate (USD/ZAR) have a very interesting relationship that goes back a long way.
In the long run, the two move in opposite directions. When the USD/ZAR rate is moving up, the silver price is moving down, and vice versa. Furthermore, when the USD/ZAR rate is making a top, then a bottom in silver is normally very close (before or after the USD/ZAR peak).
Due to the nature of this relationship, the USD/ZAR chart is often a leading indicator for a silver bottom as well as a silver rally.
The reason for the interesting relationship between the two is found in the word interesting: that is the nature of their individual relationship to interest rates. Both the South African Rand and the silver price are depressed by lower interest rates. In other words, when interest rates are low, then the market is putting a low value on the South African Rand and silver. Interestingly enough, South Africa has just recently been downgraded to junk status.
Interest rates are currently close to all-time lows; therefore, silver and the South African Rand is near all-time lows (in real terms). Note that when the South African Rand is low, it means a high USD/ZAR rate.
I have written about this peculiar relationship between interest rates and silver here. Below is a comparison between silver prices and the USD/ZAR rate:
On the USD/ZAR chart, I have drawn two support lines (2005 to around 2011 and 2011 to 2017). Around August of 2010, the USD/ZAR rate broke below the support line (with a retest occurring soon after), from where it continued lower.
Silver started an impressive rally soon after, which led to a retest of the 1980 high, of around $50.
We now have a very similar situation, since the USD/ZAR rate broke below the support line at around the beginning of this year. It has just completed a retest of that breakdown, by touching the support line. It now appears that we are soon likely to have a massive silver rally similar to the 2010/2011 one.
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