Português
Español
русский
Silver has started the year strongly and has already gained close to five percent since January 2021, with traders and investors moving back into the metal over fears surrounding the continued depreciation of the US dollar, and also the Georgia run-off, which could cause the Democrat party to have control of US senate.
The gains that silver has already posted so far this year are insignificant when considering that the metal appreciated by over fifty percent in value at the start of 2020, and trades over one-hundred and twenty percent above the lows of 2020.
While gold is often dubbed the “yellow-metal” silver is referred to by traders as the “shiny” or “white” metal. Typically, wherever gold goes, silver will follow, hence traders pay close attention to something known as the gold-silver ratio.
The gold-silver ratio shows the relative value of an ounce of gold to an equal weight of silver. Investors pay close attention to the ratio as it can predict the performance of both metals, and ultimately which metal could outperform the other in the future.
Last year during the start of the COVID-19 crisis the gold-silver ratio spiked to around 125. To give some context the ratio has now settled down to around 75. With the FED’s Q4 programme in full-swing, and the amount of COVID-19 infections rising, combined with US political uncertainty, silver could well have another positive year.
The investment case for Silver
The investment case for silver is fairly clear at the moment. Most silver bulls believe that the Federal Reserve will continue its Q4 programme well into 2021, and that the US dollar will continue to lose value as it is in the midst of a major multi-year bear cycle.
Silver reacted enormously positive to Q4, and even surpassed the gains that gold posted from the lows of 2020. Additionally, the advent of COVID-19 and general uncertainty towards the US and global economy have caused traders to seek out physical silver as a potential store of wealth.
In terms of actual demand and supply the World Institute for Silver released a recent report showing that demand for silver dropped by three percent in 2020. The same survey showed that supply fell by four percent.
The minor imbalance between supply and demand has a slight bullish skew, although physical demand was up twelve percent in 2020, underscoring that investors seeking silver as a valid safe haven is clearly on the rise.
Additionally, futures volumes on the CME were elevated in 2020, as massive speculative demand sent silver from $17.50 to above $30.00 within the space of a few weeks.
Breaking above the highs of 2020 would be incredible bullish for the metal. Silver is now approaching $28.00, meaning that demand is rising after the metal found strong buying from $22.00 in November 2020.
The next major bullish catalyst for silver prices could be a Democratic spending spree or major uncertainty towards the United States relations with China. Silver is not only used in jewellery, and industrial goods, but it is a major component for weapons ammunition.
Home grown political tensions in the United States and indeed geo-political tensions could bolster silver prices in 2021. Additionally, ultra-loose fiscal policy in the US are likely to be a huge catalyst for further silver price appreciation. Remember, wherever gold goes silver is likely to eventually follow.
Silver trading long-term
Traders looking to trade buy silver will need to take a good look at the higher time frame charts to appreciate just how far silver price could travel north if the metal starts to take-off to the upside again in 2021.
The weekly chart shows that if silver prices can start to gain traction above the $30.00 resistance level then the upside potential for silver is substantial, with the $40.00 level the first major upside target to watch.
However, the monthly chart is even more bullish and shows that an extremely large cup and handle pattern has been taking shape over recent year. Cup and handle patterns are amongst the most bullish price patterns.
To give an example, Bitcoin surged form $20,000 to nearly $36,000 after recently triggering a cup and handle pattern on the monthly charts.
According to th monthly time frame, silver price could be headed north of $60.00 if a breakout above the $40.00 level. It should be noted that this could take some time to happen. However, from an investment standpoint it really is a mouth-watering prospect.
