Gold has basked in the spotlight in recent months, and while silver is up by roughly the same amount in percentage terms this year, most investors feel it has underperformed. But as host Mike Maharrey explains in this episode of the Midweek Memo, technical analysis reveals an extremely bullish pattern emerging in the silver market. Coupled with strong fundamentals, Mike argues there's a robust upside case for silver.
In this episode, he also discusses a shift in silver demand from the West to the East, similar to a pattern we've seen in gold.
Mike opens the show explaining how pattern recognition makes it possible for hockey goalies to stop the puck.
"Pattern recognition isn’t just for hockey players. It can help you become a better investor."
As an example, Mike explains the patterns we've seen with the release of inflation data in the context of the August CPI report that came out just before he started recording.
Mike then notes that gold has been in the spotlight this year, hitting multiple record highs. Silver, on the other hand, has kind of languished.
"Now, to be fair, silver hasn’t done poorly. On a percentage basis, it's up over 19 percent, about the same as gold. But it is nowhere near its record level of close to $50 an ounce."
So, what gives?
Mike points out the difficulty in projecting silver's price movements because of its dual roles as an industrial and monetary metal.
"Untangling these various factors presents a significant challenge for silver investors."
That leads us back to pattern recognition.
"Now, I’m going to offer a caveat here – I’m not a technical analyst. I didn’t even sleep at a Holiday Inn Express. But I can read a chart, and I can learn what various patterns may signal. I was made aware of a very important technical pattern emerging in the silver market and it’s worth looking at, especially given what we know about the fundamentals. We have to go way back and look at a 50-year chart of the silver price to see this. When we do, we see a very distinctive pattern known as a secular cup and handle."
Mike explains what this pattern looks like and what it has historically signaled -- the potential for a big upside breakout.
"As the saying goes, history doesn’t always repeat, but it often rhymes. When we see these kinds of patterns emerge, one should sit up and take notice. This is especially true when it coincides with the fundamentals."
Mike briefly covers several bullish fundamentals, including record demand, market shortfalls, and a historically wide gold-silver ratio.
"When you put the technical factors together with the fundamentals, there appears to be an extremely strong bullish case for silver with significant upside."
Mike then pivots to another interesting trend in the silver market. Similar to gold, we've seen a movement of silver from the West to the East.
"The Chinese have certainly been stockpiling silver."
There is some reasonable speculation that the Chinese are trying to push the price of silver higher hoping it will strain Western economies and drain their resources.
"There is some indication the growth in Chinese solar panel production could go beyond market-driven demand. In other words, market manipulation. According to a recent Bloomberg report, the Chinese are producing solar panels at an excessive clip. There is some speculation that the Chinese are engaging in some low-level economic warfare hoping to put the squeeze on Western economies."
There is even some speculation that these dynamics could create a silver squeeze.
Taken together, all of these factors paint a very bullish picture for silver. That leads to Mike's call to action - buy some today!
Stuff Mentioned in the Show
Chinese Silver Demand Surges: Is This a Calculated Move?
Bad Data and Bad Models: How the Fed Has Shattered Confidence
About the Author
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
