Many metals, as well as stocks, have been shining quite brightly recently. There seems to be one metal lacking in the game however, and that’s silver. Precious metals as well as industrial metals have had a decent run over the last months, but none of them has started as low as silver has, which might turn out to be an opportunity for traders.
Silver is the bourgeois (retail) metal in the precious metals space, whereas gold is the institutional and central bank metal of choice. Palladium and platinum are the industrial precious metals, while silver is also a bit of a hybrid, half investment and half industrial metal, used in PV´s and electronics. Nothing copper does, silver cannot do better – just that it’s way more expensive.
Silver: Supply and demand
The demand and especially the supply side in silver is quite difficult and opaque to value. Most silver is mined as a side product from zinc, copper or gold, which is why its price does not always react logically towards the identifiable demand and supply picture. Therefore, silver lives this quiet life until it doesn’t anymore, and when it finally moves, it is known for strong dynamic moves.
The demand side for silver comes closer to copper than anything else on the industrial side, and it shadows gold on the investment side, until it takes the lead itself, which tends to happen in the final phases of precious metals runs.
Maybe the needed trigger on the investment side finally will arrive after many retail investors have been burned on crypto and will be looking elsewhere.
The supply side for silver looks to be diminishing and finally turning into a situation where the storage and above ground material from coins and bars is getting into a deficit position. Recent numbers from the different exchanges indicate that the available ounces are getting less and less, shown by the COMEX registered ounces chart below. LBMA Reserve ounces have also been falling through the year of 2022, even though not as aggressively as COMEX, but the direction is clear, there are less silver ounces available above ground.
Looking at the silver price chart below, the bullish case also becomes visible there. At least it contains a nice bullish risk vs reward setup. Beware though, should the overall markets get into turmoil again, silver can be expected to follow stocks and copper down, and potentially decouple from gold, but with silver, it’s never a given.
Reading from the five-year weekly chart above, the first major resistance point in silver is $22,50 on the spot contract, where we are now as I am writing. A high potential break upwards through $22.50 and close above should negate the last bearish structure, shown as the corrective falling A-B-C channel in the chart.
A break up will open for a more bullish 5 wave trend move and longer-term bullish outlook. The importance of the pivot around $22,50 cannot be overestimated because it can ignite a multitude of new higher targets.
The first mathematical objective is around $24.60, but the overhand is between $29 and $30, which I think will be seen. If $30 is broken properly (weekly close) then the real party begins. If it happens, you will read articles with objectives at $50 and even $100 come alive. The $50 can be argued from a chart point, the rest is not relevant now.
One way to engage could be here around $22,50. Another way is to give it time for a setback towards $21,50 or wait till the price has broken the $22,50 level decisively. My own preferred approach is to be both early and late, eventually do all three points, thereby keeping the exposure in line. Selling here is not in my cards.
To project this outlook and your position, the price of silver must stay above $17,50 structurally, but that is too far away, why we have a trading stop put in at a close below $20, keeping the risk in line. This provides for a very attractive risk reward play. Remember the weaker USD of late, together with the Federal Reserve, they have given markets a nice run already, so we might be in the last steps of the first move upwards in silver. Yours truly is not too comfortable with the current stock market levels in the West.
- Investors buying physical gold as Middle East crisis ratchets up
- Gold bullion owners hold onto their investment insurance as prices erase losses
- Investors are buying gold bullion, but are selling silver
Another way to play this, outside silver futures, Exchange Traded Products, Contracts for Difference and Spread Betting, is through silver stocks, which have lots of leverage and beta towards the silver price, but also towards the general stock market, so start easy here. Project developers will have the most torque, where producers and royalty companies will be the safer plays, because of their positive cash flow and thereby their own ability to stay alive without extra oxygen through financings, since they all are profitable at $20/oz silver.