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July 18, 2024
PI Global Investments
Precious Metals

Silver: A simple strategy layout for an upside breakout

This week, copper was the driving force in metals as Chinese smelters agreed to joint production cuts. Those smelters represent half of the global mined copper supply, triggering a raw materials squeeze that helped fuel the rally in Silver. Funds and short sellers have been skeptical of an economic recovery in China and have remained heavily short in the futures contracts. Given the size of the move last Wednesday (Silver +3.4% & Copper +3.2%), significant short-covering and stop-loss triggers were hit. We recommend adding to both Copper and Silver on any material weakness and have outlined an example strategy below using the mini futures contracts. 

Pressure in the Gold market came from ETF liquidation and repositioning regarding when the first interest rate could occur due to the higher inflation and more robust jobs data. Supportive Central Bank demand and geopolitical risk hedging muted the sell-off and kept prices above the critical $2150/oz. Bull/Bear line. With the Gold/Silver ratio trending back to 2024 lows, it remains clear that investors and traders are more keen on owning “risk on” industrials versus safe-haven assets. 

Daily Silver Chart

Silver Strategy 

Silver futures added 3.4% this week (as of this publication) and have returned to “do or die” levels. I say that because, for the better part of the last year and a half, prices have been trading in a band with $26 on the upside and $22 on the downside, where our models indicate below $23 as a good “long-term” value. Regardless of the price, there are three factors in a commodity bull market: supply, demand, and momentum. Mining supply is declining, Chinese demand is increasing, and momentum is building. An example one could use to gain exposure in Silver is utilizing the 1000 oz futures contracts. Traders could consider purchasing 1000 oz of May Silver at $24.91 (recent breakout point) and adding an additional 1000 oz of May Silver at $24.22 (recent swing low), with a stop loss at $23.84 on both contracts. Ideally, this would risk approximately $1450 if someone were stopped out while targeting an upside move beyond $28/oz. 

Having the flexibility to enter and exit the market quickly makes it essential for Precious Metals investors to have a futures trading account alongside their core Physical Precious Metals holdings. If you are interested in speculating on the rise and fall of the price of Precious Metals on a shorter-term basis, such as two weeks or two months, or If you have never traded futures or commodities, check out this new educational guide that answers all your questions on transferring your current investing skills into trading “real assets,” such as the 1000 oz Silver futures contract. You can request yours here: Trade Metals, Transition your Experience Book

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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