Silver, the edge over gold
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
When discussing wealth preservation or any form of a conservative hedge, the word gold comes easily to the forefront. The shiny metal has a substantial history of having saved a civilization or two. The lesser obvious choice is silver, but this precious metal is in a unique situation right now that any speculator that seeks out a hedge against inflation should be aware of. Silver, the edge over gold.
It isn't just a good bet to hedge exuberant market risk right now. It is massively undervalued and, as such, a pristine play in itself.
Silver in US-Dollar, monthly chart, still at average prices:
Silver in US-Dollar, monthly chart as of October 15th, 2021.
A look at the monthly chart over the last forty years, back to 1980 when the US also was confronted with a crisis, silver prices skyrocketed. Overall, though, prices right now reflect averages like averages of that time.
Gold in US-Dollar, monthly chart, trending up:
Gold in US-Dollar, monthly chart as of October 15th, 2021
In comparison to the monthly gold chart, we can see what's out of whack. Gold since then from its averages at the time has appreciated nearly 300%. We see no fundamental reasons that substantiate such a divergence between the two. With silver being that grossly undervalued, it has tremendous additional potential once it is forced to catch up. This is partially reflected in the stretch between the spot price and the actual value of physical silver that can be acquired. A nearly 20% spread can be seen now for almost two years. It would come as no surprise that a supply shortage might bring fuel to an up move.
Silver in US-Dollar, daily chart, minimizing entry risk:
It isn't only the long-term profit probability that makes silver attractive. Silver also has an edge from the perspective of execution. Low-risk entries and exits are fundamental elements for high probability win ratios.
We want to share some edges with the reader on how to engage with silver from an execution standpoint.
We picked the daily time frame since daily charts do have a significant position for most market speculators. Daily time frame charts are typically used for smaller time frame position traders as setup time frames. Larger time frame players who have their setups either on weekly or monthly charts still use daily time frames to time their entries to mitigate execution risk.
We circled in the daily chart above two sets of supportive methods on how to find low-risk entries that provide not only higher likely turning points, but a way to set tighter stops than usual.
White circles show how meaningful the “mean” (blue line) is to silver traders. Yellow circles show when the price meets the 200 simple moving average (purple line), another point of interest to traders.
A low-risk entry point marks when multiple edges appear simultaneously like in scenario “one,” a low-risk entry point is located. In our example, a short entry with support from a two-hundred simple moving average, the mean, and a distribution zone defined by a fractal volume analysis (histogram to the right of the chart.)
Silver in US-Dollar, monthly chart, getting ready:
From a long-term investment perspective, we would be interested in looking for a daily low-risk entry point once October (very right bar on monthly chart above) closes in the green. In addition, we would like the price to be lower than the October's candle closing price after the first four trading days of November.
Silver, the edge over gold:
We do not believe in extremes, quite the contrary. While typically diversification means more like throwing stuff against the wall and hoping something sticks, when it comes to wealth preservation, diversification is a good thing. We aren't living in times to aim to make a killing. Right now, risk control supersedes exuberant market play for profits. We find gold and bitcoin very much suitable to protect your wealth. The steep percentage factor of inflation also warrants for a more aggressive wealth preservation play. That is where silver comes in. Silver with the potential to see triple-digit prices in the near future allows for keeping inflation risk in check.