Silver continues to surge and is now heading back towards the $39.00 level. A break of this would see the commodity at its highest level since September 2011.
I must say, I am very happy with this result, I am still long Silver and have been buying the dips since the beginning of this year due to the correlation between Gold and Silver and the positioning of the gold/silver ratio.
But today there’s another correlation on my mind.
But first Silver
Silver is rallying hard and is now outpacing gold after the gold/silver ration hit a significant high of 104.60. Investors seem to be rotating into silver as they see it as better value at the moment.
When a market becomes extremely bullish or bearish I like to look into correlations to see if there’s a lagging market I can take advantage of.
This was the same for me when gold rallied and I knew silver had a strong correlation, so although I didn’t trade gold, I ended up trading silver instead.
Here’s where it gets interesting
When looking across the assets for correlations against silver I can see two markets that are highly correlated.
The first is NZD/JPY which has a 90.8% positive correlation. However, I am not that interested in buying the NZD (New Zealand dollar) at the moment.
The second one is AUD/JPY which has a 87.1% positive correlation. Now this one is getting my attention as there are other factors going in the forex pairs favour.
The Winning Formula?
So, we have a silver market that is rallying, a strong positive correlation with AUD/JPY and finally we have it backed by the currency strength meter.
The currency strength meter is pointing to the AUD (Australian dollar) as the strongest currency of +5, and the JPY (Japanese Yen) as the weakest currency at -5.
With the two currencies being polar opposite on the scale, we should expect an upward trend to form.
This could be the formula that sees higher prices from key levels of support.
Seasonal Mood Killer
I always like to have a look at the seasonal charts just to see if there is anything glaringly obvious.
Over a 20 year period between the 21st July and the 3rd August, the price of AUD/JPY can form a top with a success rate of over 75%. That means the market has fallen 15 out of the last 20 years, which is a strong signal.
This could put some risk on the opportunity to be a buyer.
Final Thoughts
The case for AUD/JPY upside is compelling:
Silver is surging, nearing $39.00, with strong momentum and a bullish narrative.
Correlation is high (87.1%), and AUD/JPY often lags silver’s move.
Currency strength supports it, with AUD the strongest and JPY the weakest on the scale.
However, the seasonal data is a real mood killer with a 75% historical tendency for AUD/JPY to top out between late July and early August, caution is warranted.
For me, the strategy is clear:
I’ll watch for key support levels and price action confirming that the correlation is kicking in.
But I won’t ignore seasonality; any bullish setup needs tight risk management.
This is a great example of why cross-market analysis works, but also why no single correlation is bulletproof. Silver may be the canary in the coal mine, but price action in AUD/JPY will still be the final judge.