UBS: Silver To $85, With $100+ Upside

Precious Metals Market Rundown - Vince Lansancy (February 2nd, 2024)

Key Concepts:

• Physical Shortages (Silver): Increasing demand exceeding available supply, driving price increases.
• China Export Controls: Restrictions on silver exports from China impacting global availability.
• Gold Repricing: Gold’s price adjusting upwards due to central bank demand and macroeconomic uncertainty.
• Tighter Metal Regime (2026): Anticipated period of constrained metal supply and increased price volatility.
• UBS Analysis: Investment bank’s assessment of silver’s rally and future price targets.
• Put Options Strategy: A strategy favored by UBS for clients to gain exposure to silver, involving selling put options.
• Gold-Silver Ratio: The relative price of gold compared to silver, used as an indicator of market conditions.
• Physical Demand Ledge: Price levels where significant physical buying activity is observed, providing support.
• Cap and Trade (Technical Analysis): A bullish chart pattern indicating accumulation after a price pullback.
• Measured Move: A technical analysis technique to project potential price targets based on previous price movements.

I. Market Overview & Initial Conditions (February 2nd, 2024)

The broadcast began with a snapshot of market conditions: 10-year yields were up 2 basis points, the dollar up 11 basis points, the S&P 500 up 3 points, and the NASDAQ up 69 points, continuing the previous day’s rally. The VIX remained unchanged. Precious metals showed mixed performance: Silver China futures were at 84 (up 3), US silver at 78 (spread of ~$6), gold up $14 to 2,046.10, copper up 60 basis points, WTI crude up 20 cents, natural gas down 8 cents, Bitcoin down 59, Ethereum up 12, palladium up 21, and platinum up 58 to 2,320. Wheat grades were mixed.

II. UBS Report: Silver’s Rally – Beyond Speculation

The core of the discussion revolved around a recent report from UBS stating that silver’s price rally is no longer driven by speculation but by fundamental factors: physical shortages, China’s export controls, and gold’s repricing. UBS believes a “tighter metal regime” is emerging, expected to intensify by 2026. Specifically, UBS raised its silver target to $85 (as of December 31st, prior to the recent 5-day run-up) and indicated that silver reaching triple-digit prices is “not a problem,” anticipating a peak over the next two years followed by a potential pullback due to increased supply.

III. UBS Investment Strategy: Selling Puts

Despite the bullish outlook, UBS doesn’t recommend direct silver purchases for its high-net-worth clients. Instead, they advocate a strategy of selling put options. This involves selling puts at progressively higher strike prices as silver’s price increases (e.g., selling the $28 put when silver was in the $30s, then the $45 put at $50, and now the $60 put in the $70s). This strategy is favored because:

• Clients have sufficient capital to cover potential delivery of the metal if the put is exercised.
• Silver’s volatility makes direct investment less appealing.
• The put selling strategy allows clients to profit from a stable or rising silver price.

UBS acknowledges the risk of this strategy, estimating a potential 50% retracement of the November rally (back to around $60) if their forecast is incorrect. They also raised their gold target to $5,000.

IV. Physical Demand & Price Manipulation (Silver)

Vince Lansancy highlighted a post by Andrew Lane asserting that physical demand is overcoming price manipulation in the silver market. He also mentioned a US smelter project ($7.44 billion) focused on silver and other critical minerals, as reported by Josh Fair. He contrasted current market dynamics with past claims of purely speculative price movements, referencing a satirical comparison to Baghdad Bob denying the reality of the situation.

V. Technical Analysis of Silver Price Charts

A significant portion of the broadcast was dedicated to technical analysis of silver price charts across different timeframes:

• Monthly Chart: A bullish “cap and trade” pattern was identified, suggesting accumulation after a price pullback and potential for further gains.
• Weekly Chart: A bullish flag pattern was observed, reinforcing the positive outlook.
• Daily Chart: A “physical demand ledge” was identified in the $71-$72 area, representing a price level where significant buying activity is expected to provide support. Above this ledge, financial short covering and increased Chinese demand could drive further price increases. A “measured move” setup was discussed, projecting potential targets of $83 (leading to $96) if silver breaks above key resistance levels.
• 4-Hour Chart: A breakout above $74.50 was confirmed, with potential targets identified at $77.50 and beyond. Specific entry points were suggested: buying on pullbacks to $77.50, or on a break below $77.40 followed by a retest.
• Hourly Chart: The continuation of the bullish trend was evident, with a focus on identifying entry points based on penetration and retracement patterns.

VI. Trade Strategy & Observations

Lansancy discussed a personal trade involving a call spread on silver expiring in March, emphasizing a patient approach. He highlighted the importance of having a clear opinion before analyzing charts and identifying specific price levels to trust. He reiterated the two primary technical formations: penetration and retracement. He also noted a successful trade call from the previous day, accurately predicting a move to $77.

VII. Conclusion & Key Takeaways

The broadcast concluded with a strong bullish outlook for silver, driven by fundamental factors (physical shortages, China’s policies, gold’s repricing) and supported by technical analysis. While UBS advocates a conservative investment strategy (selling puts), the overall message was that silver is poised for continued gains, potentially reaching triple-digit prices before a possible pullback in 2026. The emphasis on physical demand overcoming manipulation and the identification of key support and resistance levels provide actionable insights for traders and investors.