Is Silver Ready For Takeoff?

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Includes: AGQ, DBS, DGL, DGLD, DGP, DGZ, DSLV, DULL, DZZ, GEUR, GHE, GHS, GLD, GLDI, GLDW, GLL, GTU, GYEN, IAU, OUNZ, PHYS, PSLV, QGLDX, SGOL, SHNY, SIVR, SLV, SLVO, UBG, UGL, UGLD, USLV, USV, ZSL
by: Scot Macdonald

Summary

All indicators show that gold is poised to make a major move up.

Silver has set a firm bottom and is also ready to burst to the upside - although it may move down first - providing an excellent, historic buying opportunity.

Fundamentally, silver is greatly undervalued given its wide range of uses and possible new use in thinner, more flexible touch screens.

Gold

Looking Backward: How Did Our January 1 Report Do?

In this report, I would like to review the monthly price action for the gold market since we published our last report on Seeking Alpha. On January 1, 2018, the price of February futures gold closed at $1309.

Courtesy: EMA 2 Trade Live Signals

In the January 1 report, I wrote that with gold closing above the monthly average price of $1286, the price momentum is bullish for the rest of the month. As the market is trading now above the 18-day moving average of $1271, it also indicates that the trend momentum is bullish. This is the first filter that we use in the VC PMI automated algorithm. This metric is able to identify for us the sentiment or trend momentum of the market. With the price trading above or below this indicator, it gives us a bullish or bearish indication of the sentiment of the market. The VC PMI also tells us that if we do close below the 18-day weekly moving average of $1271 it will negate this bullishness to neutral for the rest of the month.

The second filter that we use is the VC PMI weekly moving average. In this case, it is $1286. With the market closing above $1286, the price momentum is bullish for the rest of the month. Closing above $1286 activates the targets of $1333 to $1358 for the rest of the month. The $1286 level can also be used as a short-term protective stop. If it closes below $1286, it will negate this bullish momentum to neutral and activate the extremes below the mean of $1261 and $1214, which we call the buy 1 and buy 2 levels, respectively. If you get activated at $1261, our algorithm recommends using a stop at $1214. The stop should be for the close only, so the market has to close below $1214 to be activated.

These were the indications that were included in our January 1 report. Since then, the market has rallied to the extreme above the mean and activated the sell 1 level of $1333 this past week.

Looking Forward: Bullish

Courtesy: EMA 2 Trade Live Signals

As we take a look at the supply and demand factors for the coming week, let’s see what the VC PMI is able to identify for us. With the gold futures contract closing at $1335, the market closed above the 9-day weekly moving average of $1292, which continues to confirm that the weekly trend momentum is bullish. Using this first filter of the VC PMI also tells us that if we close below $1292 this coming week, it would negate this weekly trend momentum to neutral. You can use this as your first protective level or indication to go neutral.

The second filter that we use is the weekly price momentum indicator. As we come into this week, the indicator is at $1328, giving us a bullish indication. But the VC PMI also is telling us that if we close below $1328, it will negate this weekly bullish price momentum to neutral. So this is your second stop level that you can use, which is closer to the market to stop you out or reduce your position to use as a risk level for money management. The fact that the market closed above $1328 indicates that if you’re long, you should to continue to take profits at the sell 1 level above the mean of $1347. The $1328 level is the average price as we come into next week; it is the equilibrium point. It tells you that once the market action activates the momentum, it activates two levels of the extreme above the mean, $1347 to $1359. These levels can be used to execute and take profits.

The VC PMI also tells us that if the gold market closes below $1328, you can be stopped out and it activates the buy 1 level of $1316 and the buy 2 level of $1297. It recommends that if you are short or if it closes below the $1328 level, you cover this bearishness or any short positions at the $1360 to $1297 levels and to reverse to go long with a $1297 stop. The price action is the one giving us the activation of the trend up or down. In this case, if the market closes below $1328, be prepared to take advantage of this correction to enter into the long side between $1316 and $1297, as it appears that these levels are extremely supported over the long term. When we put together the short-, medium- and long-term outlook, we are beginning to get a harmonic relationship between the trends that give us a very high probability that we are about to see a major move up in the price of gold.

When we review what has happened since January 1, we see that we have accomplished the upper targets that were established at the beginning of the month in gold.

Is Silver Bound to Take Off?

The fundamental picture of the silver is an extremely bullish picture when you take into account silver’s role in industry and in technology, which I believe is going to change the current extremely undervalued and oversold condition of the price of silver as a commodity. One of the interesting things about silver is that it has so many variables and applications that are becoming extremely important in the supply and demand equation which can be swiftly affected and catch everyone by surprise.

Besides the fact that silver has been seen as a monetary unit for thousands of years, when you take a look at the current environment -the fiat money markets and the US dollar's downtrend - it give us an indication that much lower levels are ahead of us. The ambiguity that we have coming in from the currency markets in relation to the effect of Bitcoin phenomenon is having has created a tremendous amount of uncertainty in the central banking regulated corrupted monetary system.

It is not going to be long before demand, which has deviated away from the actual real values that should be applied to gold and silver, corrects to their real value. I believe the market will soon recognize the fact that the Bitcoin phenomenon still has a lot of cleansing to do and the process will be very painful and unpredictable. We are already seeing a tremendous amount of volatility, and it is scaring a lot of investors away from that arena. Nonetheless, the silver market has come down to unprecedented low levels, holding the $15.50/$16 level for the past 12 months and building what appears to be a very strong base, which has essentially been neglected due to the euphoria focused on the Bitcoin phenomenon.

I am pointing out the tremendous opportunity the silver market is offering when you look at the fundamentals and the tremendously undervalued current price of silver. In terms of the gold/silver ratio, it is trading at historic highs in the 80s, confirming once again that the value is in the silver market. You can buy currently 77 ounces of silver for one ounce of gold - a historic relationship. I believe this anomaly is not going to last as the smart investor realizes the excellent investment opportunity silver is offering given the current economic and political environment.

New Technological Application for Silver

One of the most exciting new technological applications that I am able to see in the silver market is the fact that silver and graphene can be combined to make more flexible and stronger touch screens. Dr. Trevor Keel, technical consultant to the Silver Institute, reported that combining narrow silver wires and a form of carbon - graphene - creates a material that will produce touch screens that are stronger and more flexible that currently available.

We are moving into some exciting times in the silver market. The value of silver makes it by far the most undervalued asset of all assets in the world. I believe when the reversion occurs and the price of silver adjusts to its real value or mean, it will be a spectacular transformation of wealth in a short period of time. I think it’s time to take a serious look and buy silver aggressively for the long term.

SILVER: S&D Weekly levels

Courtesy: EMA 2 Trade Live Signals

With the silver market closing at $17.14 Friday, we have a bullish indication because it moved above the 9-day moving average of $16.76. The VC PMI also tells us that if silver closes below $16.76 it will negate this bullish trend to neutral. At the same time, you can use this as a stop to manage your risk.

The second filter that we use is the weekly price momentum. The market closing above the weekly price momentum indicator of $17.10 indicates that the market is bullish. The VC PMI is able to extrapolate the extreme above the mean and below the mean as we come into next week. This is how the VC PMI creates a specific structure of the average price, two levels extreme above that average price and two levels below the average price to activate trades, if the condition of the market validates those prices. Closing below $17.10 would neutralize this VC price momentum and would activate lower levels of support of buy 1 at $16.91 and buy 2 of $16.69.

Just to review, the silver market closing above $17.10 is a bullish indication to take profits up to $17.33 to $17.53 levels. It says that if the market closes below $17.10 it activates buy signals at the $16.91 and $16.69 levels.

I think the markets in gold and silver are definitely confirming the alignment we published on October 23, 2017 in Seeking Alpha. The acceleration that we have seen since the beginning of this cycle, with the low that was made in the middle of December, has completed a 30-day cycle right into the extreme above the mean levels in the gold market of $1339 to $1340. There is a good probability that from these levels a reversion to the mean will occur and the market could correct back to that level of $1328, or average price, before giving us an indication of where we are going to go from there based on supply and demand activity. If given the opportunity for the market to correct into that $1316 to $1297 level, I believe it will be the last opportunity that you will have to buy gold during this potentially explosive cycle that is unfolding for 2018, projecting prices to the $1387 to $1450 and higher levels for the remainder of the year.

Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts. It is for educational purposes only.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.