Copper/Silver: Let those 1 oz American Eagles keep soaring
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Friday night is my favorite time of the week. You get to reflect on the trading you have done so far, the mistakes you've made, and the opportunities you might have missed. Where was the low in the market you are trading? What was the high? Are you on the right side or the wrong side? Are you still long Gold from $2100/oz on the Russia/Ukraine panic highs in March, or did you run out and buy a bunch of Silver in April 2011 when it peaked at $50/oz? Charles Mackay (1814-1889) wrote a fascinating book called "Extraordinary popular delusions and the madness of crowds," which is partially a series of case studies on the psychology of mass mania surrounding different investments.
I was thinking about that book primarily because of the conversations I have been having with clients, colleagues, and friends surrounding the price of Silver. The discussions weren't about the cost of COMEX futures because they actively trade nearly daily. The conversations were about the price of 2022 1 oz American Silver Eagle coins. If I wanted to buy 1000 of these, it would cost me somewhere in the ballpark of ($39.43 times 1000), so $39,430. Looking at how much actual "Silver" I would have is 99.93% (the Silver composition of each coin) times the melt (spot) value of $20/oz (or so), which comes out to $19,986 worth of Silver.
One characteristic I have is the unemotional ability to make investment decisions, and my goal, as should be yours, is always to try and make money. So if I had $39,430 worth of 2022 1 oz American Silver Eagle coins and Silver went up $10/oz, what would my investment be worth? How am I going to sell those and capitalize on them? Do I take the Eagles to the Pawnshop, sell them on E-Bay or offload them to a friend? That sounds exhausting, let alone the spot price of Silver is a moving target. Today, for instance, Silver was up 7%. What if it was up 50% today? Can I offload all those coins and book a profit? What if I bought them yesterday and they have yet to arrive?
What if I took the same $39,430, rounded it up to $41,000, and opened a futures trading account with a brokerage that allows me to get a certificate representing 1000 ounces in a warehouse? Then buy 2 December 1000 oz. futures contracts, store them in the warehouse, wait for Silver to go up $10, and offload them seamlessly. My $41,000 would turn into $61,000 (less some nominal fees), and I didn't even have to break a sweat. Let alone pay $20,000 in premiums. If you have never traded futures or commodities or would like to learn more about taking delivery, I just completed a new educational guide that answers all your questions on transferring your current investing skills into trading "real assets," such as the 1000 oz Silver futures contract. You can request yours here: Trade Metals, Transition your Experience Book.
Daily Copper Chart
Daily Silver Chart
What most people need to remember when they trade Silver is the breakdown of its uses. 50% of Silver demand is industrial, 25% is jewelry and eating utensils, and the other 25% is investment demand. Today's 7% move had nothing to do with investment demand and everything to do with industrial demand. Chinese markets soared as the Hang Seng had its best week in 11 years. News that significant changes were taking place in the country's zero-covid policy sparked rallies in Copper and Iron ore. Copper and Silver are running an 85% positive correlation to each other over the past five rolling days. With the world on track to tighten interest rates well into 2023, is this the start of some "new bull market"? I don't know about that.
I firmly believe that U.S. Equities will continue to face the mounting pressure and that the bottom is not in. With the rally in Silver, Precious Metals, and Energies to close out the week, we will be offloading many of those positions while waiting for the next news event to drive prices lower. Next week we will have another round of CPI data, and it is that type of data that can push the Dollar back up to contract highs. I strongly recommend not chasing these markets, and if you must, buy 1 Silver Eagle, not 1000 of them. To further help you develop a trading plan, I went back through 20 years of my trading strategies to create a Free New "5-Step Technical Analysis Guide to Gold that can easily apply to Silver." The guide will provide you with all the Technical analysis steps to create an actionable plan used as a foundation for entering and exiting the market. You can request yours here: 5-Step Technical Analysis Guide to Gold.