Wow, that was fast! Silver is on a winning streak, gaining against its richer cousin almost by the day. Last night’s price action probed the area between $19.50 and $20.00 per ounce before falling back, putting our next target of $22.00 per ounce in play. However, key resistance surrounding 2016 swing highs at $21.23 per ounce looms over the market. Silver is also overbought. Consequently, some type of volatile corrective action would not surprise us.
Data Source: Reuters/Datastream
The poor man’s gold has run up so far, so fast, that we’ve been unable to establish an upside target beyond $23 per ounce. This is about as high as our forecasting metric goes. We debated whether to increase our next target from its current $22.00 per ounce level to $23.00 but, given silver’s overbought condition, decided to leave it alone for now.
We believe a retracement would be healthy and supportive of a longer-lasting climb and would consider using it to add to our bullish option positions. Resistance levels on the way up tend to become support on the way down. Failure from here could take prices back to our old upside targets of $17.50 and $16.50 per ounce without negating the bull market. Failure from our next objective of $22.00 could extend down to $17.50.
Silver Still Has Some Catching Up To Do
The gold/silver ratio measures how many ounces of silver it takes to purchase one ounce of gold. This ratio is typically at its highest when precious metals are at their lowest and at its lowest when precious metals are at their highs. This is due to silver’s more volatile nature. The poor man’s gold has a habit of overshooting both to the upside and to the downside.
Data Source: Interactive Data
As the chart above illustrates, silver is still relatively inexpensive in relation to gold. The gold/silver ratio has retraced from nosebleed levels above 92.50, but it is still high relative to its long-term average ratio of 55 ounces of silver to one ounce of gold. Although this doesn’t mean silver will keep screaming higher over the near term – it certainly could – it does signal the potential for much higher prices down the road.
Platinum Is Closing In On Our $1,000 Objective
Silver is not the only metal with a lot of catching up to do. One could make the argument that platinum is even cheaper versus gold than silver. Platinum has dropped far, going from being worth nearly $500 more than gold at the top of the last precious metal bull market in 2011 to $570 cheaper than gold now.
We’ve been chomping at the bit to get long January platinum call options but have been reluctant due to their illiquid nature. We were hoping to get one more decline to buy but the market gods had other ideas. We did recommend futures positions in an early February blog post which we followed with an update later that month. The bullish factors we listed in both blogs are just as valid today. This market could rocket much higher than even the most bullish suspect.
Platinum made a new swing high of $994 per ounce this morning putting it within shouting distance of our first upside objective of $1,000 per ounce. RMB Group trading customers long futures may want to consider using the last low of $835 per ounce as a risk point until market action provides us with a higher one.
Data Source: Reuters/Datastream
Please be advised that you need a futures account to trade the markets in this post. The RMB Group has been helping its clientele trade futures and options since 1991 and are very familiar with all kinds of option strategies. Call us toll-free at 800-345-7026 or 312-373-4970 (direct) for more information and/or to open a trading account. Or visit our website at www.rmbgroup.com.
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The RMB Group
222 South Riverside Plaza, Suite 1200, Chicago, IL 60606
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