Silver Price Cup and Handle Points to a Pullback or Consolidation

Feb 2, 2021 09:18 PM ET
Silver Price Cup and Handle Points to a Pullback or Consolidation

Silver price started the week on a high note. The metal skyrocketed by more than 10% and rose to its highest level since 2013. At the time of writing, it is trading at $29.50. 

Wall Street Bets and silver price

The biggest catalyst for the silver price was the Wall Street Bets craze that started a few weeks ago. It refers to a situation where day traders using platforms like Reddit and Discord take stakes in companies and other assets and hype them. 

Last week, they managed to push the stock prices of firms like Nokia, Blackberry, Bed Bath and Beyond, AMC, and GameStop sharply higher. Along the way, they managed to cost many hedge funds billions of dollars.

During the weekend, the traders decided to hype silver and Ripple, the cryptocurrency. When the markets opened on Monday, silver shot up by more than 10%, while silver continued its weekend gains. 

Therefore, the Wall Street Bets craze is the primary reason why the price of silver rose on Monday. As it did that, other metals like gold, copper, and platinum also rose. 

Strong manufacturing data

Silver prices also rose because of the relatively strong global manufacturing PMI data. These numbers are usually important for silver because of its industrial roots. 

While silver is often looked at in the same lenses as gold, the two are different. On the one hand, gold is a precious metal that is mostly bought by investors and central banks. It does not have a substantial industrial use. Silver, on the other hand, is both a precious and industrial metal used in the manufacture of silverware, kitchenware, and solar panels.

Earlier today, Markit and other agencies published relatively mixed manufacturing data. In China, the PMI declined from 53.0 in December to 51.5 in January. This decline was worse than expected. However, in reality, since the PMI was above 50, it was a sign that the country’s industrial sector is doing well. 

In Europe, the PMI increased from 57.7 in December to 57.8 in January, while in the UK, it rose from 52.9 to 54.1. The same trend was seen in other countries like Italy and France. Therefore, there are signs that demand for silver will rise.

Meanwhile, the silver price has rallied recently because of the election of Joe Biden and the Democratic majority that he has. Biden is seen as being good for silver because of his ambition to increase investments in clean energy, which also includes solar. He has pledged to allocate trillions of dollars to help the country transition from fossil fuels. If he gets his way, it means that demand for the metal will keep rising.

Back to Wall Street Bets. The biggest risk for the price of silver is if it turns out that the current rally is just a pump and dump scheme. This is a situation where people build momentum on an asset, attract bulls, and then dump them. 

Silver price outlook

Silver price chart

Turning to the weekly chart, we see that the silver price has been attempting to rebound after it reached a high of $29.7 last year. In doing so, the metal formed a cup and handle pattern. And today, it reached the right side of this pattern. Also, the price is above the 25-day and 50-day exponential moving averages. 

Therefore, in the near term, I suspect that the price will either have a brief consolidation or pull-back to complete the handle part of the cup and handle.

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