Commodity Trade Mantra

A Chart Pattern that Promises of Stunning Movements in Silver Prices

A Chart Pattern that Promises of Stunning Movements in Silver Prices

A Chart Pattern that Promises of Stunning Movements in Silver Prices

Silver is moving between $16 and $20 for a year now. After the stunning move in the first months of last year, where the silver price rose from $14 to $21, the grey metal has basically consolidated.

Investors tend to focus on the short to medium term. That is a natural effect of the information overload we are facing today with financial media focused on day-to-day moves.

Smart investors look at different timeframes, and understand very well the very long term trends with are dominating in every market and stock.

If we look at silver on a longer term timeframe we observe a very interesting long term pattern. It is a rarely seen pattern, for sure because of its length: an 11-year chart pattern. Let’s be clear here: this is highly unusual.

Although the silver chart will reveal many trends when examined in more detail, think of the 7th breakout attempt on the silver price chart (5-year chart), we only care about the dominant trend on the very long term (10-year chart). Visibly, at least for now, are the two trendlines shown on below chart: a series of lower highs (started in 2011) combined with a series of higher lows (started in 2005).

This silver price chart pattern is rare

The pattern on below silver price chart is quite sharp, so it has significant predictive value.

What this chart setup tells us is that silver could fall to $15 (even a bit lower) in the coming months. Once below $15 it could setup for another dominant trend which is not visible on the 11-year chart. Once above $19 to $20 it would break out from its series of lower highs, although the ultimate breakout test would be the $20 to $21 area.

We will soon find out if our Silver Price Forecast For 2017 will be achieved or not. – Taki Tsaklanos

silver price chart pattern

A Real Breakout In Silver Prices Is Coming

Silver bull Lior Gantz, editor of Wealth Research Group, discusses why he places silver at the top of his natural resource rankings.

NASDAQ Market Cap/US GDP Ratio

I’m a silver bull. It’s the one asset class that has gone from bad to worse to nonexistent for most investors, and this is why Wealth Research Group places it at the top of our natural resource rankings.

How did this precious metal bring so much desperation and frustration to investors?

Real Assets at All-Time Lows

Real assets (commodities) haven’t been this cheap in a century.

2008 changed the global landscape from Asian expansion to global economic crash mode.

It brought about experimental financial practices and the need to create a “wealth effect,” which has probably skipped you if you’re not a multimillionaire and is why you’re completely ready for a complete makeover of the system we are ruled by.

This transition has not gone unnoticed by money-hungry, power-driven politicians, which are capitalizing on the renewed rise of populism.

We are transitioning away from monetary policy (Fed intervention) to fiscal policy (government intervention). Trump’s infrastructure plan, his tax plan, and his defense plan are only the beginning.

Financial assets are rising into uncharted territories, while disposable income is mostly declining. In other words, for eight consecutive years, our financial system has transferred immense amounts of paper wealth to the elite.

This has brought about the rise of cryptocurrencies, among other effects, and the disgust voters have for the establishment has been growing.

Since the economy was slow, materials and industrials were deemed “dead assets,” and because of low interest rates, the financial sector wasn’t attractive either.

Out of the last 6,162 trading days going back to the beginning of 1993, the NASDAQ has been more overvalued than today with a market cap/GDP ratio exceeding its current level of 45.8% on a total of only 201 trading days, or 3.26% of the time.

NASDAQ Market Cap/US GDP Ratio

The U.S. economy, by all measures, is currently operating at its full potential growth rate. This slow-growing economy can’t move any faster—debt is the overhanging cloud that prevents growth.

The U.S. economy always peaks as job growth reaches maximum employment, and then a recession follows.

This is the fate of the U.S. economy in the next few quarters as well.

U.S. Unemployment Rate

What does this mean for silver, then?

As the U.S. enters a recession and interest rates are at prime levels for precious metals to rise in price, investors will look for new sources of growth, and like I said, nothing is as certain as infrastructure programs, both in the U.S. and China.

Higher inflation rates, a weaker dollar, and cheap Chinese shares have propelled silver from its lows in the early 2000s to close to $50 per ounce at its peak a number of years ago.

XAU/S&P 500 Ratio

Even so, silver is cheaper than you think—in fact, it’s cheaper than almost anyone can imagine.

It’s the only commodity 66% cheaper than 37 years ago.

It has sucked the lifeblood out of even the most rigid bulls, but the ones who have slowly accumulated and have created a cash hoard in order to catch the move up once the U.S. equities market contracts will have a story to tell their grandchildren.

Silver stocks are considered the most volatile equities in the world, therefore you’ve seen a move away from risk as the price of gold subsided, apart from that 2016 epic, short-lived bump.

The trend is now reversing.

2016 marked the first year since 2012 where gold prices in all major currencies have risen.

As interest rates rise, investors no longer need to own an overweight position in dividend stocks as a means of achieving yield, as inflation is eroding those yields.

Instead, in times of inflation, the investment community flocks to commodities, and value investors, especially those like Bank of America Merrill Lynch Global Research’s chief investment strategist, Michael Hartnett, see the move towards real assets as one of the major themes for 2017–2018.

GSCI/S&P 500 Ratio

The index is down by 75% from the historical median, which translates to a 400% upside just to reach equilibrium, but the juniors will perform much better than that.

Here’s how you need to play this:

1. Now: With the GDXJ (VanEck Vectors Junior Gold Miners ETF) rebalancing ending June 16 and the Fed’s next rate decision coming the day before, creating a cash position is important right now.

A real breakout will happen with gold initially, and the price we’re looking for is $1,300.

2. $1,300 Per Ounce: This is an “all clear” signal. Do what you will, but it basically means that sellers will be few and buyers will be plentiful. – Lior Gantz

 

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request your views on the above article

  • Gold is now out of reach of common man.
    Now they are going for silver. Even in many industries gold is substituted by silver.
    Similarly people now a days wearing more silver compared to gold.

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