What has always been my favorite metal and my go to in times of boom and crisis has been a bit of a disappointment recently leaving us with new technical levels to watch. Something silver investors need to consider is the industrial fabrication demand which makes up 60% of total silver consumption. The four largest manufacturing companies by revenue are Volkswagen, Toyota, Apple and Samsung. These companies have either been taken offline in the case of Apple and Samsung, while Toyota and Volkswagen have been affected by the disruption in the supply chain. Looking at the largest silver producers, Mexico and Peru, they have not had any reported coronavirus cases meaning the production of silver has gone unscathed leading to a temporary Supply/Demand imbalance.
Now looking out into the future we should see the Federal Reserve come to the market and step up their aggressive loose monetary policy and further ease interest rates. We have seen the 10-year treasury yields drop to record lows and traders are now pricing in a 60% chance of an interest rate cut at the April meeting. Goldman Sachs has already cut U.S. GDP forecasts for the first quarter to 1.2% and the economic outlook for China. As soon as Fed officials decide that enough it enough and step in it should be a shock to the U.S. Dollar, a backstop on equities and the spark that ignites the next leg higher in metals.
Looking at the technical backdrop there are really two major chart patterns that stick out to me. The first is the upside-down head and shoulders pattern. This pattern is the long-term formation that has been building over the past six months. Remember formations are rarely perfect so there is going to be some market noise while the second is the triple top. This is where key four-star resistance comes in and once it is broken could lead to a whole new wave of buying at $19.00/oz. I believe the best approach would be to consider a long-term call spread by using $19 as your bottom strike and use the upper strike to control your risk to reward ratio.
Chief Market Strategist
Blue Line Futures LLC
141 W. Jackson #2845
Chicago IL 60604
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