Editor's note: The stock market and our offices will be closed on Monday in observance of Memorial Day. Your next issue of DailyWealth will publish on Tuesday, May 28, after the Weekend Edition. Have a safe and happy holiday. This essay was originally published in DailyWealth Trader, a daily trading advisory, and has been adapted. To learn more about this service, click here.
Investor Fear Remains High Despite One Metal's Recent Breakout By Chris Igou, analyst, DailyWealth Trader
Silver rose 141% in five months back in 2020... The metal was at its highest level since 2013. And investor demand for silver was skyrocketing as a result. Then, silver prices fell. And they haven't been back to where they were for the better part of four years. Now, silver just broke above that 2020 high. But before you decide that the rally can't last, there's one thing you need to know... Investors aren't buying this rally hand over fist like they were back then. And as I'll explain, that means silver could go even higher from here...
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You see, silver has been on a tear in the past seven months. It's up more than 40% since its bottom in October. Heck, it rose more than 6% last Friday alone. The recent surge drove silver to its highest level since 2013. We'll use the iShares Silver Trust (SLV) to highlight the rally... Again, silver is taking off in a big way. It's these kinds of rallies that tend to lure in the crowd. And once the crowd arrives, the party is usually almost over. You might think that's where we are today. But that's not the case at all. You see, as an exchange-traded fund, SLV has a unique structure that allows it to create or liquidate shares based on demand. When investors want to own silver, SLV creates more shares to meet that demand. And when they want nothing to do with silver, the fund cuts shares. This makes it a great contrarian indicator. When the crowd is all in on one trade, you want to do the opposite. And SLV's share count reveals a massive difference from the 2020 peak. Back then, shares outstanding for SLV were making new all-time highs. Demand was even higher than we saw in 2011... when the fund peaked at around $50 a share. We aren't seeing that at all today. SLV's share count is down 37% from its peak in 2021... This isn't what a top in silver looks like. In fact, demand has been falling despite higher silver prices in recent months. This is a setup we love to see as contrarians. The trend is up. Yet, investors aren't buying the rally. And they especially aren't all in on higher silver prices yet. Until that happens, silver can always climb higher before the bull run ends. In fact, SLV would have to rise another 67% to reach its all-time high set in 2011. And with demand for SLV shares still falling, there's plenty of time for the fund to make a run like that. Don't let the decade-plus high in SLV scare you. Prices don't fall just because they've gone up. That typically happens when there's no one left to buy. We aren't there yet. That's why now might be a good time to consider owning this silver fund, before the crowd starts to play catch-up on this boom. Good investing, Chris Igou
Editor's note: A rare market event is underway. This convergence has only happened once since World War II... And it signaled a huge move in the metals market that could have helped you make 500%-plus within just six months, thanks to a select group of stocks. Now, investors have a second chance to profit... which is why we've called on a stock-picking veteran with 30 years of expertise. He's coming out of retirement for just one day to explain this opportunity – and to reveal the No. 1 stock to buy immediately. Click here to learn the details. Further Reading Gold prices have climbed too far, too fast recently. These "overbought" levels would normally be cause for concern. But according to history, this doesn't mean the rally is over. In fact, more upside is likely ahead... Learn more here. Sentiment is near its most bearish level for palladium. But a turnaround could be on the horizon for this often-overlooked metal. And that could offer contrarian investors a unique opportunity... Read more here. |
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