These Two Charts Show Why NOW Is the Time to Buy Silver
Editor's note: When you invest in precious metals, keeping the proper perspective is key...
It's easy to get caught up in the short-term market "noise." But if you want to sleep better at night, you must learn to tune out the distractions and stay focused on the long term.
It's also important to know when to spot buying opportunities – and take advantage of them when they arise...
In today's Masters Series, adapted from last Thursday's issue of our DailyWealth Trader newsletter, editors Ben Morris and Drew McConnell reveal what two important charts say about the price action in silver – and explain why they believe this could be the start of a big move higher for the metal...
These Two Charts Show Why NOW Is the Time to Buy Silver
Stocks have soared in recent months. And precious metals – in a lot of people's eyes – have been underwhelming...
After hitting an all-time high of $2,064 per ounce on August 6, gold is down about 9%. And silver has fallen around 12% over a similar span from its most recent peak.
Meanwhile, the benchmark S&P 500 Index is up about 13%... the tech-heavy Nasdaq Composite Index is up around 17%... and the small-cap benchmark Russell 2000 Index is up an incredible 30%.
That may be frustrating for some gold and silver holders. But we're not concerned...
For one, as our colleague Bill Shaw explained in yesterday's Masters Series, gold is up 23% since the start of 2020. And silver is up about 44% in that span. That's far better than the S&P 500 and Russell 2000, which are up 15% and 19%, respectively, so far this year. The Nasdaq is up nearly as much as silver, with a 42% gain.
So if you've been holding precious metals in your portfolio for the majority of 2020, you can hardly complain. This year's returns have been fantastic.
And second, the precious metals – especially silver – look like they're ready to make another big move higher any day now...
As we head to press this week, congressional leaders from both parties are close to a new stimulus package, likely to the tune of nearly $900 billion. Wherever the money goes, it dilutes the existing supply of circulating dollars. And as Bill mentioned yesterday, that's positive for gold and silver, which can't be printed out of thin air by government decisions.
So it's no surprise that silver's price action is very bullish. We'll show you what we mean in two charts.
First, in DailyWealth Trader, we looked at silver's intermediate- and long-term trend lines – its 50-day and 200-day moving averages (50-DMA and 200-DMA) – earlier this month.
The 50-DMA is the average of an asset's closing prices for the prior 50 trading days. We use it to gauge the intermediate-term trend. The 200-DMA is the same thing for the prior 200 days (about 10 months) of price action. We use it to gauge the long-term trend.
For longer-term positions with expected holding periods of a few months to several years, you should pay more attention to the 200-DMA. For shorter-term trades with expected holding periods from a few weeks to a few months, you should pay more attention to the 50-DMA.
We consider two main things when looking at moving averages...
The first is that during bull markets, assets tend to spend most of their time above their moving averages. And during bear markets, they spend most of their time below them.
The second is the direction of the moving averages themselves. The moving averages are the trends. When they're moving higher or lower, assets often continue to move in the same direction.
These widely followed moving averages often serve as important "support" and "resistance." Support is a level at which folks tend to buy an asset and prices often stop falling. It's an obstacle for falling prices. Resistance is a level at which folks tend to sell and prices often stop rising. It's an obstacle for rising prices.
Either way, if an asset breaks through support or resistance, it will often continue to move in that same direction.
Here's what we said on December 3...
Silver soared far above both its 50-DMA and its 200-DMA through early August. Then, it dropped hard and stabilized. It still trades well above its 200-DMA. But it has pulled back repeatedly at its falling 50-DMA...
If silver can break above that level, its 50-DMA could soon turn higher, too. We would see this – a rising intermediate- and long-term trend in silver – as a great sign for both silver and gold.
As you can see in the chart below, silver has broken through its now-rising 50-DMA...
This is a great sign for both precious metals.
In the next chart, you can see that silver has been trading in a narrowing range since August. Its rallies have stalled at its downtrend "resistance." And its declines have paused near its "support" around $22 per ounce.
Silver has been stuck in this trading range for about five months. But this week, it's breaking out. Right now, silver trades at a little more than $25 per ounce...
Both this breakout and silver's move above its 50-DMA are fresh.
But this looks like the start of a big move higher in silver. Now that is has climbed above its downtrend resistance, silver's next targets are its prior August highs at $29.12 per ounce... then on to new highs.
Gold and silver needed a break after their big rallies at the start of the year. Now, they've had that resting period and are rising once again.
The big picture for gold and silver is bullish. Governments are printing huge amounts of cash to support their economies... This will devalue their currencies over time... And it will continue to be a major tailwind for precious metals prices.
And right now, the price action in silver is bullish, too. Now that silver has broken out, its short-term upside potential is big.
If you've been waiting for the right time to buy silver or silver stocks, this is the moment you've been waiting for.
Good trading,
Ben Morris and Drew McConnell
Editor's note: You'll likely do very well if you buy silver today. But if you're looking to take your game to the next level, you'll want to check out the research from our colleagues John Doody and Garrett Goggin in their Silver Stock Analyst advisory...
In fact, Garrett is so confident that silver will soar from here that he put $30,000 of his own kids' college fund into silver-related stocks. And he just put together a limited-time offer for those interested in his analysis – as well as updates on the broader silver market.
For a few days only, Garrett is offering access to one year of Silver Stock Analyst for more than 70% off the normal retail price. Plus, new subscribers will receive a brand-new special report detailing a rare opportunity in a mining company with 10-times upside that just spun off one of its assets. Click here to take advantage of this offer – before it disappears.