Silver has posted its largest gain in months, generating considerable excitement on social media and other investment platforms that the move could mark the beginning of an extended price rally. Watching other non-yielding physical and digital assets such as gold and bitcoin take flight, it feels strangely similar to the “silver squeeze” era of 2021.<\/p>\n
Silver is not bitcoin<\/h2>\n
But while supply and demand fundamentals explain much of bitcoin’s movement, it is a stretch to suggest this has implications for the silver market. There is no imminent supply halving, while demand largely reflects trends in industrial production and jewelry. Certainly, gold is also rising, but the precious metals movement appears to be momentum-driven rather than fundamentally driven, at least in the short term, meaning it could reverse as quickly as it began.<\/p>\n
But fundamental tailwinds are present<\/h2>\n
While I am cautious about silver’s sudden surge, there are favorable fundamental factors working in favor of low or zero-yielding assets at this time. As mentioned Monday in a desperate trade idea<\/a>, U.S. market-based inflation expectations have taken off, particularly over shorter time horizons.<\/p>\n The following chart shows one-year inflation breakeven rates in the United States over the past three months, tracking where markets see inflation averaging over the next 12 months.<\/p>\n Source: Refinitiv<\/p>\n From the lows reached in mid-January, the rate has risen by over 110 basis points to nearly 3%, well above the Federal Reserve’s 2% mandate. Yet the chorus of Fed speakers continues to signal rate cuts rather than rate increases.<\/p>\n U.S. real yields, which measure bond returns relative to expected inflation, have also declined from their highs, although they remain at elevated levels. At times, they can be influential on low or zero-yielding assets, boosting them when real yields fall and vice versa.<\/p>\n From a fiscal perspective, the United States is recording its largest budget deficit in the past 100 years outside of crisis periods, surpassed only by the Great Depression, the Great Recession (GFC), and the pandemic. When looking at the two presumptive presidential candidates for the 2024 election and the congressional gridlock that recent polls suggest it could bring, it is difficult to see the budget trajectory or the trend in interest outlays changing for the foreseeable future.<\/p>\n Source: St. Louis Fed<\/p>\n I understand why traders and investors want hard assets. But these developments are certainly not new, particularly regarding the fiscal situation.<\/p>\n Perhaps a weak manufacturing PMI will be considered the catalyst that triggered the great precious metals bull market. But, on the other hand, perhaps it will not. Unless you have extreme conviction in the sustainability of silver’s movement, ensure your risk management practices are in perfect order.<\/p>\n Looking at the charts, one can understand why silver has attracted the attention of the trading community.<\/p>\n After bouncing on three separate occasions from support at $22 since November, buyers were not even willing to see another test before entering last week with a reversal from below $22.50 that led to the printing of a dragonfly doji candle on the daily chart. Since then, the candles have become increasingly longer and bullish, seeing resistance at $23.50 yield easily.<\/p>\n Looking ahead, the next upside target is around $24.42, where silver was rejected on several consecutive days in late December. If the squeeze manages to break through that level, an even tougher test awaits above $26, where other rallies stalled in May 2022 along with April and December 2023.<\/p>\n Although the price has strong upward momentum at this time, positioning right between resistance and support, the risk-reward for opening a position does not prove particularly strong.<\/p>\n For those wishing to go long, which is the direction I am leaning at this time, the options are to buy now with a tight trailing stop-loss, wait for a pullback toward $23.50 before buying to improve the risk-reward ratio, or buy on a clean break of $24.42, should the price reach it.<\/p>\n For those looking to fade the move, which I consider a low-probability move given the momentum, one could sell now with a trailing stop loss targeting a decline to $23.50. Alternatively, one could wait to see if the rally fails to break $24.22, allowing for short positions with a stop above the target of a reversal to $23.50.<\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Silver has posted its largest gain in months, generating considerable excitement on social media and other investment platforms that the move could mark the beginning of an extended price rally. Silver has just recorded its largest single-day gain in months Other low-yielding or zero-yielding assets have been rising since late last week Risk management is important for anyone trading silver … Read More<\/a><\/p>\n","protected":false},"author":3,"featured_media":7129,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-7127","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-senza-categoria"],"_links":{"self":[{"href":"https:\/\/www.investorofemet.it\/en\/wp-json\/wp\/v2\/posts\/7127","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investorofemet.it\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investorofemet.it\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investorofemet.it\/en\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investorofemet.it\/en\/wp-json\/wp\/v2\/comments?post=7127"}],"version-history":[{"count":0,"href":"https:\/\/www.investorofemet.it\/en\/wp-json\/wp\/v2\/posts\/7127\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investorofemet.it\/en\/wp-json\/wp\/v2\/media\/7129"}],"wp:attachment":[{"href":"https:\/\/www.investorofemet.it\/en\/wp-json\/wp\/v2\/media?parent=7127"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investorofemet.it\/en\/wp-json\/wp\/v2\/categories?post=7127"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investorofemet.it\/en\/wp-json\/wp\/v2\/tags?post=7127"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"1-year](\"https:\/\/www.forex.com\/en-ca\/-\/media\/shared-media\/2024\/01\/1y-breakevens.png\")
<\/p>\n![\"U.S.](\"https:\/\/www.forex.com\/en-ca\/-\/media\/shared-media\/2024\/01\/us-budget-deficit--interest.png\")
<\/p>\nBut this is certainly not new information<\/h2>\n
Silver bulls target a retest of December highs<\/h2>\n