Silver -How to Participate in this Run?

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Updated: Jul 23, 2020, 05:36 UTC

XAGUSD (Silver CFD) has gone vertical, seemingly trying to play catch up to Gold. Although this may seem logical, it is NOT a good idea to be consumed by such a limiting belief. What you are witnessing here is the herd mentality at an extreme, and it is very important to understand what this behavior means in terms of RISK.

Silver (and Gold) are not only traditional and historical currencies, they are also prime candidates for conspiracy theories and HYPE. Some things you may read or hear today: “There is no gold in Fort Knox”, or “There is absolutely NO physical silver available anywhere”, or “based on the Gold/Silver ratio, silver should be at 200 in a week or so”. And I’m sure there are many new ones as well, but these have been around for years, ATLEAST 10.

Meanwhile back in March, Silver was pushing lows at 12. My point is, DO NOT be consumed or motivated by any of these “logical” fundamental theories or infotainment oriented stories. Often these tactics are used to try and sell a product or service (buy these rare gold coins! or buy this special newsletter!).

The goal of this video is to provide a sensible perspective on how to participate in this run. Buying AFTER or into a vertical move of this nature is not favorable in terms of probability because often this type of momentum cannot be sustained. Instead, the more effective behavior would be to WAIT for an inflection point. Based on the recent price structure and history, that point is around the mid to low 18’s.

This price may or may NOT be reached when silver consolidates these current gains. Keep in mind, it is also possible for this market to find support higher, maybe around the 20 area BUT it would need to prove itself by producing a clear reversal structure and setup.

Another thing to consider is the instrument that you use to participate. CFDs are better for short term strategies because they often have a cost associated with them in the form of a “swap” or interest payment. This becomes costly over time which is why if you intend to invest over a longer period, there are a number of stock alternatives that will benefit: AG, FCM for silver and NEM, KL, GOLD, GDX for gold. There are also physical alternatives as well like minted coins and bars. I recently conducted a free webinar on the pros and cons of paper (derivatives like CFDs) vs. physical ownership (just visit my website found on my profile).

At this point the most effective thing to do is WAIT for the next retrace and measurable buying opportunity. Yes it requires patience in the face of a market that seems to be going higher without us, but patience has no risk and it’s free. Opportunities are infinite while our trading capital is not

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This article was written by Marc Principato CMT, Executive Director at Greenbridgeinvesting.com.