Managing Editor’s Note: Today, we’re handing the reins to colleague Larry Benedict.
Larry is a market wizard and legendary hedge fund manager. When he talks, we listen. And right now, he is watching the silver charts closely.
He sees the chance for a 45% rally from here. And, for those looking to trade it, he shares an easy way to play it…
Gold has been on the top of commodity traders’ minds lately… and rightly so.
The shiny metal has soared by 20% since the middle of February. It broke out of its long-term trading range and set new all-time highs.
While gold is taking all the attention, there’s another metal that’s been staging an even stronger rally…
Silver has always been in the shadow of its shinier counterpart. It’s commonly referred to as the “poorer cousin” of gold.
But over the past three months, silver has outperformed gold.
It has risen by 32% against gold’s return of 20%. In fact, silver has been one of this year’s best-performing commodities so far.
On top of that, silver has formed a bullish pattern and sits at the very top of its long-term trading range.
A breakout past this level of resistance sets the stage for an additional 45% rally up to $42 an ounce…
Let me show you what I’m seeing…
Breaking the Neck
Take a look at this chart. It shows the price movement of a troy ounce of silver.
As you can see, silver has been stuck in a multiyear trading range between $18 and $30 following a sharp move higher during the COVID pandemic.
But there’s two things that stand out to us in this chart.
The first is that silver has completed an inverse head-and-shoulders pattern from 2021 to its recent run higher.
You can see that reflected in the three distinct troughs. I’ve added an “S” for shoulders and an “H” for the head.
This is a bullish formation that signals a change in sentiment.
Sentiment turned from pessimistic to optimistic. And the bulls tested the sellers’ control over the price, eventually winning out.
Now silver sits above the neckline, which I’ve shown with a dashed line. The neckline connects the peaks of the formation and serves as the level of resistance.
Silver is above $30, which breaks the neckline. This confirms the bullish reversal and will likely fuel a strong upward move.
To get an idea as to how high silver can run, we can use the pattern as a guide.
The height of the pattern is about $12 per ounce from the neckline to the trough of the head. Based on that, we can predict that silver could rise to $42, which would be $12 above the neckline.
Of course, this isn’t a perfect science. There are a multitude of factors that play into how high silver can go.
But as it stands today, things are looking bright for this overlooked metal.
Strength Everywhere You Look
Outside of its technical attractiveness, silver has strong fundamentals backing it as well.
The silver market is currently in its fourth straight year of being in a shortage. In fact, this year’s shortage is widely forecasted to be the second biggest supply deficit on record.
That has led industrial users of silver to drain their inventories. Stockpiles tracked by LBMA fell to the second lowest level on record in April.
Ultimately, this bodes well for the price of silver.
For those looking to trade silver’s potentially strong rally, the iShares Silver Trust (SLV) is an easy way to play it. It’s an exchange-traded fund that tracks the price of silver.
With silver trading at this crucial point, you can be sure I’ll be watching closely for potential trades to take advantage.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict