Technical Analysis: Silver prices Setting Up To Soar
Silver prices have been under pressure for the past few weeks. Don’t be too bothered by it. Pay attention to the gray precious metal or you could be kicking yourself later.
Dear reader, don’t pay too much attention to daily fluctuations in silver prices. There’s usually a lot of “noise” and prices move erratically. Think big picture, and when you do just that, there’s a massive bullish case in the marking.
In these pages, I have talked over and over again about the fundamentals of the silver market. There’s demand surging and the supply is struggling. Don’t just trust me on this; look at the figures yourself.
Major mints around the world are reporting surging demand and the biggest silver mining product regions are actually reporting declines in silver production. Mind you, don’t expect this disparity to calm anytime soon.
But fundamentals aren’t the only thing that suggest silver prices could soar. Look at silver price action, it’suggests much higher prices are ahead. Even the short-term outlook looks amazing. Please see the chart below, and pay close attention to the blue lines.
Chart Courtesy of www.stockcharts.com
When looking at a short-term silver prices chart, there are two things investors should be looking at:
- There’s an uptrend in play. Since early 2016, silver prices have been trending higher, making higher highs and lower lows. With this, you have to remember the most basic rule of technical analysis: trend is you friend until it’s broken. Don’t be shocked if the trend remains in play for a while. For the uptrend to break, silver prices would have to go below $17.50.
- Since early July, the silver price chart is forming a flag and pennant pattern. At the very core, it’s a short-term continuation pattern. This pattern is formed when after a sharp increase in prices, called a flag (what we saw in June), is followed by consolidation.
Now, when it comes to technical analysis, if you are looking for a chart pattern, there’s usually a target for which you can aim. With a pennant pattern, after it breaks above the upper resistance level, you could see a rise as much as the size of the flag.
In this case, we could use the flag as the silver price movement in the month of June. It was roughly $5.20, so a short-term target of silver prices at roughly $25.00 shouldn’t be considered impossible. It could go there.
Here’s How to Make Money with Higher Silver Prices
To make money with silver prices, it could be a great idea to pay attention to silver mining companies.
Consider this: if silver prices move from $20.00 now to $25.00, by owning silver bullion, you would make a 25% gain. Decent rate of return nonetheless.
But it could be better…
Since the beginning of the year, as silver prices have increased about 42%, several mining companies have seen their value triple or more. For instance, take First Majestic Silver Corp. (NYSE:AG) for example. Year-to-date, it’s up close to 400%, so for every one percent increase in silver prices, AG stock increased 10%.
Now, let’s assume for a second that going forward, the returns aren’t leveraged like they have been so far. Let’s say we could see mining companies increase five percent for every one percent move in silver prices.
Simple math here: if silver prices move 25% in the short term, we could see some mining companies show a return of 125% or more.
Certainly, time will tell more.