Silver May Not be Your Cup of Tea…
But the Charts are most certainly showing a Textbook Cup (& Handle)
While the financial news stations focus most of their attention on the stock market, it seems as though the precious metals market is beginning to garner more of the headlines lately, especially after gold broke out to a new all-time high last Friday.
History does not repeat itself exactly, but in the world of technical analysis, patterns most definitely repeat. In fact, one of the most reliable price patterns is the textbook Cup & Handle formation. Below you will see a 55-year monthly chart of silver, highlighting the pattern I am referring to.
A candle chart is nothing more than a footprint of the price action of a commodity or stock, over time. As we all know, price is driven by the actions of those who buy or sell in the open market, and if you think about it, the charts are simply recording the behavior patterns of those who drive the price up, down, and sideways. When prices reach a level where investors feel it is overvalued, they will sell it, and when they believe the price is cheap enough, they will buy it.
Underlying support is where the investors see value and overhead resistance is where investors feel comfortable taking profits. However, once the price begins to break out over the overhead resistance levels, traders will move in for a momentum play. This gets the attention of the investors who are now regretting the day they sold out early.
Below is a chart that was published through Zerohedge on Monday, September 23rd, 2024, which highlighted the Cup & Handle breakout which occurred in the gold market back in March of the same year. As you can see, Gold is still running, and my $3000 per ounce price target is still in force. The way most technicians establish their price targets for these patterns is simple. You measure the depth of the cup, which is drawn from the bottom of the pattern to the brim, or rim, of the cup. Once you have taken that measurement, you attach it to the breakout point, after the price moves over resistance.
Cup & Handle (GLD) dated Sep. 23, 2024
Silver has a long way to go just to test the brim of the cup, however, a breakout over $50 is when the real action begins.
While my price target for Silver is currently set at $50 per ounce, I believe we will eventually see a breakout that could be historic. Using the technique for determining the measured move of a breakout over $50, we could see silver rally to $95 or higher.
Keep in mind, I am not factoring in the supply shortage we are already seeing due to the industrial applications of this precious metal, so we could wind up in unchartered territory once the short squeeze begins.
COMEX is Most Vulnerable
COMEX, which is part of the CME Group, the world’s leading derivatives marketplace, is extremely vulnerable to a short squeeze because they are the exchange that is obligated to deliver the physical metal to those who take delivery on the expired futures contracts. Once we have reached a point, where the supply runs out, the global exchanges will have to, as some say, ‘beg, borrow, or steal’ the silver bars to meet their delivery obligations. If there isn’t enough silver to fulfill their delivery obligations, COMEX could wind up in default. Needless to say, this would result in an unprecedented global catastrophe that would also take out the banks who are involved with lease agreements in Silver.
The first sign you will see before the price explodes to the upside, will come from COMEX when they halt trading. They will declare a financial emergency which will mandate all brokers and dealers to restrict any new buying of the metal, in an effort to control the volatility. However, this will only last for a short time. Eventually, they will realize the demand has become too great for them to keep a lid on it, and the price could run much higher.
This will be a very exciting time for those who are long silver, while at the same time, it will be a nightmare for those who are short the silver market. You heard it here first.
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