At the end of January, there was a phenomenon that took place world-wide.
In all my 19 years of being in the markets, I've never seen anything like this…
GameStop (an everyday old fashioned gaming company selling video games and accessories) jumped from $45 up to $360 in a single day.
Only thing is, it wasn't the fundamentals (company events) that gave rise to the price - but a group of followers on a social media forum called Reddit.
Basically, they went against the hedge fund managers and managed to convince their 3.5 million followers to buy GameStop sending the price over 1,900% higher.
What's fascinating is that this wasn't the first and last time.
Since then, we've seen unloved stocks rally such as Nokia, BlackBerry and AMC Entertainment heading up over 80%. We also saw a underdog crypto-currency - DOGE Coin rally over 350%.
And now, the community has been eyeing a precious metal…
They aim to send the silver price up to over $1,000.
Now I might not be that optimistic that we'll see that triple digit gain any time soon. But I definitely see silver heading up over 24% in the next few weeks.
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Silver rallied to an 8-year high thanks to the Reddit frenzy
Going back to the social media group…
The application is known as Reddit.
Reddit is comprised of thousands of different chat forums.
The sub-Reddit forum which we’re interested in is called r/WallStreetBets.
This is a chat forum which has now over 5.5 million users (also known as the ‘degenerates’). These are the guys that are causing a major disruption in stocks, crypto-currencies and commodities.
Right this minute, if you go onto the sub-Reddit forum you’ll see a string of messages, telling the followers to keep buying silver and to send the price to $1,000 an ounce.
And so this is going to give silver a lot of buying attention in the next couple of weeks.
In fact, last week we saw the silver prices rally over 12.8% to $30.35.
This is the highest the silver price has gone up since February 2013.
And this didn’t only send up the silver price, it also sent up a number of stocks and ETFs.
The iShares Silver Trust (SLV) ETF - the largest silver-backed ETF - jumped 7.1%.
And data showed that the holdings rose by a record 37 million shares from Thursday to Friday alone.
We then saw the top gainers on the FTSE 100 in London were:
This kind of attention on silver will continue to create demand, which will send the price up further over the next couple of weeks.
Even China is buying Silver!
Last week Monday, Chinese investors rushed in to buy silver, after they heard about the ‘Degenerates’ on Reddit buying it up.
In fact, China’s domestic silver prices flew to the highest level since September. Prices on the Shanghai Futures Exchange closed up 9.27% at 5,939 yuan per kilogram.
Precious metals senior analyst at Orient Securities Research, Xu Ying, said
“Since last week’s Reddit discussions to buy long, funds have flowed into the silver market,”
“In the short term, silver’s rise has little to do with fundamentals. Sentiment to go long is high, the market rally is not over yet.”
And so, a number of Chinese listed silver mining companies shares soared last week including:
Shengda Resources Co Ltd and Inner Mongolia Xingyw Mining Co Ltd.
We even saw the listed open fund UBS SDIC silver futures close up over 8%.
So far we have Reddit and China helping to push the silver price up further. And if we add factors like the global economic recovery to take place, with the distribution of vaccines and the world opening up to businesses, we have every reason to believe resources and commodities like silver will continue to rally.
And the charts agree 100%.
Why this Cup & Handle formation is showing a 24% rally for Silver!
Above, you’ll see the daily price chart of Silver.
Since the beginning of the year, it’s formed one of the breakout patterns I use to send trade ideas to Red Hot Storm Traders.
It’s called a Cup and Handle formation (shaded area).
This pattern resembles a Cup with a Handle and consists of three main parts:
Part #1: The cup (Big rounding bottom on the left side)
Part #2: The Handle (Small rounding bottom on the right side)
Part #3: The brim level (ceiling level) $27.68 per oz.
This month, we saw the Cup and Handle pattern finally complete, and then break above the Brim level at $27.68.
When the price broke above the resistance level, this attracted more buying which sent the price up further.
And based on the factors I’ve mentioned today, it looks like we’re in for the next silver wave up.
If we use the High-Low calculation approach, we’ll find the next price target for Silver.
Here's the calculation:
Price target = (High - Low) + High
= ($27.68 - $21.69) + $27.68
Right now (as I type this), the silver price has come back down from the social media buying frenzy and is currently at $26.90.
However, I still believe the downside is short lived.
In fact, the price continues to make higher lows since 22 July 2020 (my birthday). And with China piling into silver, the demand will most likely pick up again and send it to over $33.40.
Here are two ways I’ll profit from the 24% rise in silver
First, I can either buy Silver CFDs and hold them until it hits the target at $33.40.
I will be looking for trade ideas to send through via my Red Hot Storm Trader
Service, for companies that move up when silver does such as Anglo American, BHP Billiton, Kumba Iron Ore etc…
Analyst, Red Hot Storm Trader
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