Out of a long silence, we are still around! We've taken a position in silver. We think the reward to risk is very favorable. The rumbles about loosening monetary policy in EU and the FED setting the stage for future rate cuts corroborate with price action on precious metals. With gold and gold miners in play, silver should eventually participate.
If you've been sitting on lots of cash, we think its acceptable to diversify some of it to silver. Silver is cheap relative to other asset classes. Producers digging in provide short term price support. This gives the short term margin of safety to see if the TECHNICAL set up really is a bottoming play.
The technicals in terms of momentum divergences are hinting so. The rumbles about loosening monetary policy in EU and the FED setting the stage for future rate cuts corroborate with price action on precious metals. With gold and gold miners in play, silver should eventually participate.
Not wanting to reinvent the wheel, here are some posts that denote the probability of inflation and loosening monetary policy that bodes well for precious metals, and eventually, silver. Here and here.
Additionally, precious metals can hedge against the following threats that are looming. EU company debts are increasing, and the US China trade war isn't helping Moody downgrading China's debt. Both are uncertainties that encourage monetary easing that encourage inflation.
1) Blue Sky scenario: it's really a bottom.
We think that there is a probability that precious metals (and by extension silver) could have turned the corner. If so, then this sets up the stage for what could be at least 2 stages of a move toward $17. It may move further than that, but this is a convenient price target to take profit. I cannot say how long it will take to reach there.
2) Grey scenario: it's just very oversold and cheap.
We think silver is the cheapest of the precious metals (gold and gold miners) now, and there is some value in the price disparity. In this regime, the price target is about $15.20.
Hence, the combined 2 prices targets are:
First target at $15.20 (if FED and EU monetary loosening are temporary)
Second target at $17.00. (if FED and EU monetary loosening has turned the corner)
The data that looks interesting:
a) Technicals have an interesting set up. Of course the 2 wave up price pattern is simply a possibility, there are infinite ways this could play out. The strength of the first wave higher and how the price will react when it hits $15.20 will give a hint on the second wave.
The technicals are shaping for a weekly momentum divergence that is a set up for an intermediate bottom.
b) Producers, who are the strong hands, are digging in at these levels. They usually contribute to a short term bottom.
3) We recognize that there have been bearish downward forces on silver as compared to gold that has caused it to underperform. But of course, there is a risk that the market forces and news sentiment conspire to keep silver down, such is the nature of statistical plays, but we use technicals to corroborate the set up of when the cycle turns. This is a cycle turn and stat orb play in one. However, if SLV price collapses below $13.50, we have to re-evaluate if the upcycle thesis is in. Downside risks include a better than expected US China deal, inflation less of a concern, monetary tightening, better financial situation in EU and China.
Looking at Silver. Looks yummy.
Till next time, everyone stay safe,
The QuantZombie team.
PS: I am long silver.
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