3 Charts Silver Investors Must Watch
Silver prices are ripe for a big move to the upside, so don’t rule out $50.00-an-ounce silver price yet. It could happen a lot sooner than one would expect.
Mind you: this extreme bullish take on silver prices isn’t based on gut feeling; there are several concrete reasons for it.
Fundamentally speaking, the silver market is seeing seismic activity: demand is increasing and the supply side is really struggling. Basic economics alone could send silver prices soaring.
From a technical analysis perspective, the outlook for silver remains robust. There are three charts on which precious metal investors must keep a close eye.
Silver Prices Holding 200-Week Moving Average
The first chart tracks silver prices; the blue line represents the 200-week moving average (MA) of the silver price. Essentially, the 200-week MA is a trend indicator, but if you look closely, it’s also a great indicator for where silver prices could go.
Over the years, whenever the price of silver has been able to break above this MA or remain above it for extended periods, a big move to the upside eventually followed.
Since 2022, this MA has acted as a strong support level for silver prices. The price has dropped below it but has made a recovery above it very quickly. This is bullish, telling us that the gray precious metal could be setting up for a significant upward move.
Chart Courtesy of StockCharts.com
Chart Pattern Says Silver Could Surge to $44/Oz
The second chart shows an interesting pattern forming.
Over the past few years, silver prices have formed a chart pattern called a “cup and handle.” This pattern forms when prices trade in a U-shape, looking like a cup, and then they drift downward and form a “handle” shape. This is drawn on the chart below for some perspective.
Chart Courtesy of StockCharts.com
Technical analysts consider this pattern to be bullish. Once it matures, analysts wait for the price to trade out of the downward drift. Around this time, it tends be a great buying point. That’s because after the price breaks from the downward drift, a massive rally usually follows.
How high could silver prices go if this pattern plays out?
With a cup-and-handle pattern, technical analysts usually have targets. Once the price breaks out of the downward drift, they set the target by measuring the distance between the right peak and the bottom of the cup and then add that to the breakout point.
In this case, let’s assume a breakout point at around $30.00, with the distance between the right peak and the bottom at about $14.00. So, the chart is saying that the price of silver could jump to $44.00 per ounce.
Gold-to-Silver Ratio: Silver Could Skyrocket to $56.66/Oz
The last chart worth watching is the gold-to-silver ratio.
This shouldn’t be a new chart for long-term readers of Lombardi Letter, but for those who are new, this ratio tells us how many ounces of silver it takes to buy one ounce of gold.
Whenever the gold-to-silver ratio drops below 40, silver enters overvalued territory. If the ratio goes above 80, it means silver is getting into undervalued territory. The higher the ratio goes above 80, the lower the price of silver is.
Over the past 40 years or so, there’s been a pattern that has played out over and over again. After hitting 80, the gold-to-silver ratio has made a run towards 45.
Assuming the ratio goes there once again, and gold prices don’t change much, it would mean silver prices would have to surge to $56.66! That’s 90% above the current price.
Chart Courtesy of StockCharts.com
What’s Ahead for Silver Prices?
Dear reader, it may not be a question of if silver prices will go up; on the contrary, I think we are at a point where it’s just a matter of when they will. The three charts mentioned above only make my stance on silver stronger.
I must also say this: if we see some sort of selling in the financial markets, silver could come under fire. However, I think that the downside may not be significant, the comeback could be fierce, and the decline could be nothing but a blessing in disguise for those who have ignored it.
There are multiple ways to speculate on silver. For example, one could do it through silver bullion or through silver-backed exchange-traded funds (ETFs). For investors willing to take a little extra risk for leveraged gains to silver prices, miners could be worth looking into. Ignored by investors, they could provide immense returns as silver prices surge.