By Kris Sayce, editor, Casey Daily Dispatch
Yesterday, we wrote to you about a perfect way to speculate with small amounts for the chance to bag big gains.
It’s what colleague Nick Giambruno calls “BitStocks.”
But it’s not the only way to play the market for big gains.
As we put together yesterday’s essay, another perfect opportunity came to mind.
And most recently, investors had the chance to double their money in short order.
Next time, the gains could be even bigger. And that could happen soon…
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
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To introduce you to the most important investing themes of the day, and
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To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Nick Giambruno, Dave Forest, and the founder of our business, Doug Casey.
Today’s idea is right in the Casey Research wheelhouse. It’s precious metals. To be more specific, silver.
Details below…
What’s the Big Deal?
When it comes to silver, the best way to analyze this story isn’t necessarily with fundamentals. It’s not by looking at the silver price in isolation… or exploration costs… or the supply and demand for gold and silver.
The best way to see how this will play out is by looking at the charts. And one chart in particular – the gold/silver ratio.
Whenever we need to look at things from a technical angle, we always get in touch with technical analyst, Imre Gams. We did that yesterday.
Our first question was to ask Imre what the big deal is with the gold/silver ratio.
He explained:
Gold has the tendency to steal all the headlines when it comes to precious metals, and rightly so.
From a purely technical perspective, trends in the gold/silver ratio can explain why.
The gold/silver ratio measures the number of ounces of silver it takes to purchase one ounce of gold. The higher the ratio, the higher the price of gold relative to silver.
If the price of gold is trending higher and at a faster rate than silver’s price, then it makes a lot of sense that investors would be more interested in gold.
The gold/silver ratio is a popular indicator among gold and silver investors. They use it to work out whether silver is cheap or expensive compared to gold.
So if something is cheap or expensive, does that mean there’s a “fair” level for the gold/silver ratio?
There’s debate around that. According to Medieval Monetary Problems: Bimetallism and Bullionism, published in 1983, the historical ratio (pre-20th century) varied between 9:1 and 14:1.
That means, one ounce of gold would be worth anywhere between nine and 14 ounces of silver. But as you’ll see from Imre’s charts below, it’s a long way from there.
Get Ready to Trade… But Don’t Buy Yet
Here’s the first chart Imre showed your editor. It’s of the gold/silver ratio going back to 2008:
The ratio fell to 31.92 back in April 2011. That was the lowest level since 1980 (not shown on this chart).
Since 2011, the ratio has steadily climbed. That was until the ratio put in a major top in March 2020, at around 120.
As Imre went on to explain:
Since then, as the decline in the ratio gained momentum, silver attracted significant attention from investors and traders.
The perfect example of how much attention it gained was when Reddit investors began trying to squeeze out silver short-sellers. You may remember that campaign.
Whether Reddit had a substantial impact on silver’s dramatic rally is up for debate. Regardless, the rally fizzled out. And so too did the mainstream financial media’s interest.
Why did investors lose interest? When Imre explains it, it’s understandable…
Most investors have very short attention spans. And they’re impatient. When the attempt to push the silver price fizzled out, the price began moving sideways.
Whenever prices of any asset go sideways for an extended period, the market’s focus will quickly shift to some other shiny new object.
I get that. As a trader, I hate sideways markets. But to ignore them completely is a huge mistake.
Sideways price action can sometimes develop into a triangle. [Editor’s note: Check out our conversation with Imre on June 10, where he explains the importance of triangles.] Triangles present great trading opportunities.
And guess what? Silver’s price action over the last several months looks as though it’s developing into a triangular pattern.
You can see what Imre means in the silver price chart below:
Looks easy to trade, right?
The only problem, according to Imre, is that triangles can be tricky to trade. He said traders often make the mistake of trying to anticipate the breakout of a triangle too early.
The Next Big Move Is Coming
So the key is to be patient. The good news of course, is that the likelihood of a breakout increases as prices get closer to where the two trendlines eventually converge.
You can see that’s happening on the chart. The range of silver’s price action is narrowing. And the next big move looks as though it will play out in the next couple of months.
As Imre concludes:
This narrowing means there is a buildup of pressure inside the trendlines of the triangle. Eventually, that pressure will release and silver will have its next big move.
The question is… will this big move be higher or lower? Luckily, we have a something that can help us work that out. The gold/silver ratio.
If the triangle on the silver chart breaks out upwards and the gold/silver ratio keeps declining, then this increases the odds of silver going even higher.
This is exactly the setup I’m looking for.
And we’re looking for the same thing, too. Because when the silver price takes off, it really does move. From 2009 to the peak in 2011, the silver price gained nearly 400%.
And in the most recent rally, from March to August 2020, the silver price more than doubled.
That’s why we like silver.
It’s the opportunity to make a relatively small bet and in return, you get the chance to make outsized gains.
We’ll be sure to keep a close eye on the gold/silver ratio and the silver price over the next few weeks. Based on the chart analysis, the price will breakout.
When it happens, we’ll let you know here.
Cheers,
Kris Sayce
Editor, Casey Dailey Dispatch
P.S. This upcoming action in silver proves the point that there are always opportunities to make money from the markets.
And it proves the point that there are always opportunities to make money in the way we like best – placing small stakes in order to make big gains.
If the silver price action plays out as we hope, a quick double will be on the cards. But that’s not the only way to make quick doubles from precious metals…
Colleague Dave Forest and his team have designed an entire system that helps them find the best “small stakes, big gains” plays in the market. And right now, two of his top plays in this category are in precious metals. The good news is they’re right in the buy zone.