As Gold Cools Down, Our Silver Trade Heats Up
Does gold have more upside? Yes, but there is a better opportunity out there.
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On April 9, our gold trade reached its final target. Nearly one month later, gold has settled down, and is still hovering near our target price of $2325 (point D).
Does gold have more upside? Yes, but there is a better opportunity out there.
As the gold trade ended, we created a trade setup for silver. In April, a successful breakout above a massive former resistance level (red dotted line) pushed silver to multi-year highs.
We didn’t catch the breakout. Instead, we created a plan to buy silver on a pullback.
With support located near $26 (red line), we placed our entry at $26.25 (green), and added a protective stop at $24.25. The entry price, stop, and price targets were provided in the April 9 article. Please note that the stop has now been raised to $25.25 (red).
Our entry for spot silver finally occurred on May 2, when the price reached a low of $26.01.
Why did we raise the stop? Luck smiled upon us on Monday, as silver shot higher by 3.3%. By late afternoon, silver was trading just below $27.50. The sharp move created an opportunity to improve our reward/risk ratio on the trade.
By raising the stop, the risk has now been reduced by half. The reward/risk ratio on our first target ($29.75) is now 3.5:1. Our second target of $34.25 now has a reward/risk ratio of 8:1.
Why not raise the stop higher, and reduce all the remaining risk? Once the stop is above the red dotted line, it is no longer protected by the support level.
Conversely, our stop is currently located in an area that can only be touched if support breaks. If it does break, then our reason for being in the silver trade is no longer valid.
If our first target of $29.75 is reached, we will raise the stop to the entry point of $26.25.
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Why not just trade gold again? I do think that gold has more upside, especially in the long run.
However, silver has the better trading setup right now. Gold has soared by about 15% this year, while silver has gained just over 7%. Silver just may have some catching up to do.
At the time of publication, Ponsi was long silver.
