Silver Catches Fire, What’s Our Next Move?
The metal has had a torrid month, and sticking to our plan has been beneficial. We have made one major change, though.
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Metals are smoking hot right now — and not just precious metals. Gold and copper both reached fresh all-time highs on Monday. Platinum reached an all-time high last week.
What’s the driving force behind higher metals prices? The U.S. Dollar Index, while technically still in a bullish trend of higher lows (HL) and higher highs (HH), has pulled back sharply, from 106.50 to 104.50, since the start of the month.
The dollar has dropped below its 50-day moving average (blue) and is clinging to its 200-day moving average (red). The greenback is also close to a bullish trendline that originated at the start of the year (black dotted line).
The weakening dollar has also placed a tailwind beneath stocks, as the major indexes continue to move higher. If the trendline breaks, look for metals and stocks to take another leg higher.
Our focus remains on silver. Silver has had a torrid month, gaining over 20% since the start of May. We laid out our game plan for silver on April 9, just as we exited a successful gold trade.
First, we were lucky enough to buy silver on a pullback to $26.25 (green). Then our first target of $29.75 (gray) was reached on May 16. Our remaining silver target rests at $34.25 (blue).
All of the above figures were listed in our original plan, and sticking to that plan has been beneficial. So many of us, especially in our early days, tend to make too many adjustments. This stems from a need for control, which eventually must be overcome.
We have made one major change, by raising the stop on our silver position to $29.25 (red). This places the stop strategically beneath the May 6 low of $29.33 (arrow).
Since we’ve already pocketed gains on half the position at $29.75, our average exit price will be $29.50 if our new stop is hit. That win is now our worst-case scenario.
Our best-case scenario would involve reaching our second target. This would result in an average exit price of $32, not bad when you consider that the entry price was $26.25.
If the U.S. dollar has a further breakdown from here, we may have to re-evaluate, but in the meantime, we’re sticking to our plan. We may also raise the stop again, but we will not lower it under any circumstances.
More Commodities:
- The Oil Market Was a Victim of Its Own Success
- Here's Why Investors Remain Committed to Copper and Silver
- As Gold Cools Down, Our Silver Trade Heats Up
At the time of publication, Ponsi was long silver.
