Why Analysts Are Pointing to a Big Opportunity in Silver

Peruse the list for unusual activity in the derivatives market for the midweek session and you might see an intriguing name pop up: Silvercrest Metals (SILV). Based in Vancouver, British Columbia, Silvercrest specializes in precious metal exploration and production. Primarily, it focuses operations on its Las Chispas Mine, in Sonora, Mexico, where studies indicate that it ranks among the highest-grade primary silver projects globally.

Fundamentally, this status should unequivocally represent good news. Back when the COVID-19 crisis first capsized the U.S. economy, the Federal Reserve responded with an unprecedented injection of liquidity into the monetary system. And following the recovery from the spring doldrums of 2020, both SILV stock and the underlying silver market rebounded strongly.

Unfortunately, since late 2020 through the middle of 2021, silver prices largely went rangebound. From there, silver incurred a decidedly bearish downtrend. Still, it appears that the white metal bottomed late last year. And across the last several weeks, SILV stock and the underlying asset took a bullish turn.

Indeed, commodities expert Thomas Bills points out that silver actually bottomed in August 2022. Further, the analyst doesn’t see any signs of the metal slowing down. In fact, Bills wrote, “I believe Silver has a strong chance of retesting 5 recent major highs between 26.50 and 30.35 that date back to 2020. Therefore, I would be looking for buying opportunities before reaching this zone and profit taking inside this zone.”

Undergirding Bills’ optimistic assessment are technical analysis indicators that suggest silver prices will continue swinging northbound. However, the fundamentals supporting the asset – along with related mining investments such as SILV stock – are arguably just as intriguing.

Essentially, although the money stock dramatically increased early in the COVID-19 crisis, the velocity of said money stock didn’t accelerate until last year. With the possibility that spending could pick up domestically and internationally in the new year, SILV stock suddenly became interesting again.

Traders Bet Big on SILV Stock

Following the close of the Jan. 25 session, SILV stock represented one of the highlights in Barchart.com’s screener for unusual stock options volume. This stat shows the difference between the current volume and the average volume over the past month. Usually, traders leverage this data to determine which stocks may be due for big moves ahead.

Specifically, SILV’s volume level reached 4,013 contracts against an open interest reading of 22,849. Call volume hit 3,009 contracts versus put volume of 1,004. Further, the delta between the trailing-month average total volume versus the prior session volume came out to 458.91%. The implied volatility (IV) rank hit 8.45%, which indicates the (at the money) average IV relative to the highest and lowest values over the trailing one-year period.

To summarize, IV signifies the expected volatility of a stock over the life of an option. As certain influencing factors for the underlying investment changes, the IV will likely change as well. Further, as demand for an option increases, so too will its IV.

The IV low for SILV stock was 40.98% on Aug. 11, 2022. A few months later on Dec. 21, 2022, SILV hit its IV high of 149.27%. Prospective investors should note that per Barchart.com’s technical analysis gauge, SILV ranks as an average 48% buy. Although sentiment is contested, the overall environment points favorably toward the bullish side of the spectrum.

Even better, analyst sentiment ranks toward the optimistic zone. Three months ago, Wall Street experts pegged SILV stock a “moderate buy,” breaking down as two strong buys and three moderate buys. Significantly, no expert rated shares a hold or below. In the current month, both the consensus and the individual breakdown remains the same.

Interestingly, in the trailing year, SILV stock fell around 9%, which is not far removed from the S&P 500 index’s 7.67% loss. Per Barchart, SILV’s 60-month beta is only 1.05, indicating slightly more volatility than the benchmark equities index.

China Could Skyrocket the Silver Price

Although China’s insistence (until recently) of imposing a draconian zero-COVID policy clouded the global economy – and thus demand for commodities such as silver – its reopening could reverse the prior ugly paradigm. According to Barchart’s Rich Asplund, stronger demand from Chinese consumers could fuel crude oil prices this year.

Of course, higher crude prices imply greater economic activity, which in turn indicates greater consumption of critical resources. Notably, in July last year, silver prices softened due to tumbling demand as COVID-19 outbreaks wracked China. Now, they may rise as Chinese industries reignite, eager to make up for lost time.

To be fair, it’s not a surefire bullish narrative for SILV stock. On the domestic side, mass layoffs – particularly for high-paying tech jobs – impose a deflationary impact on the broader economy. However, with China finally returning to some semblance of normal after a three-year crackdown, the intense potential energy could be enough to bolster the silver price.

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