Silver Price Forecast: WARNING For The Silver Bulls

October 15, 2019

silver coins

In yesterday’s extensive analysis we focused on gold, so in today’s analysis we’ll move to the second-most-popular precious metal and the favorite of many – silver. Silver is the metal of choice for many individual investors mainly due to two reasons. One reason is that the suspected ongoing manipulation of the silver market and the manipulation theories always gather significant interest. This reason may or may not be justified. Another reason is silver’s enormous potential in the long run and its uncanny ability to soar almost vertically in the final parts of a given upswing. This reason is very well justified.

While gold is likely to rally substantially in the following years (not before declining significantly first, though), silver is likely to outperform it by a huge margin. Why? For the same reason it soared 40 years ago – the market is much smaller (it might be cornered), and the nominal price is lower (it’s easier to imagine that the price of something at $20 doubles than the price of something at $2000, which makes the cheaper good more appealing to some investors). And for multiple other reasons as silver is now used more widely in the industry (how could it not be since it’s the best conductor of electricity?) while the silver stockpiles are not as high as they used to be. To be clear, we’re not saying that there is shortage of silver (or shortage of gold), but we are saying that there are more reasons for silver to rally than there are reasons for gold to rally. And when the time comes, silver is likely to respond in a meaningful way to the bullish forces. This time has yet to come, though, as silver is likely to decline first. You have been warned.

Let’s take a look at silver’s cyclical tendencies.

Every two years or so, silver tends to form a price extreme. Sometimes it's a major top, and sometimes it's a major bottom, but this indication is almost always correct. Please take a look at the chart above for details. The next turning point is right here, and silver is after a huge-volume rally. This is a classic combination that would indicate a major top. The most similar situation that we saw in the recent past with regard to both cyclicality and volume, was the 2008 top. Silver was after a sharp rally, and we saw a spike in silver's volume. The implications are strongly bearish for the following months.

We warned our subscribers about the upcoming reversal before it took place and the market proved us correct. The long-term turning point worked once again – silver reversed, and the trend is now down.

It may not be apparent based on the above chart, but the starting point of the most recent upswing is similar to something that we already saw.

It’s the starting point of the most profound decline in silver that we saw in the previous decades – the 2008 slide. The horizontal dashed line proves that the price levels are indeed almost identical. How identical? Well, can you tell if the 2019 high is really above or just at the dashed line? Exactly. It’s so close that it’s impossible to tell without zooming in.

This level – the proximity of $20 – is more important than it appears at first sight. It served as resistance in late 2009, twice in early 2010, and silver accelerated its decline only after it broke through this barrier. This level then stopped the 2013 decline (twice) and it served as support in early 2014. Silver tried to break above this level in 2016, but it failed and invalidated the breakout shortly. Decline followed and higher prices have not been seen since that time. The final attempt to break above this level took place this year. And silver failed once again.

The take-away is clear – silver didn’t end it’s bear market just yet. It was forced to rally as gold rallied significantly this year, but silver’s strength was only temporary, and it was not enough to take out the game-changing resistance.

By the way, do you remember yesterday’s discussion of the invalidations of breakouts in gold in terms of the euro and the British pound? Please note how silver soared in 2013 and how it declined in 2016 after invalidations of a breakdown and breakout, respectively.

While discussing silver, it’s worth mentioning it’s recent triangle-vertex-based reversal.

Whenever a rising support line and a declining resistance line cross, a price extreme is often formed. Silver’s recent reversal took place almost right at such a crossroad, just as we warned in advance. What does it mean going forward? It means that the odds are that the counter-trend rally in silver that we saw recently is most likely over.

Comparing prices of gold and silver also tells us the same thing.

The gold to silver ratio declined recently, just as both gold and silver moved higher, but this decline was nothing more than a verification of the breakout above the 2008 high.

In a way, the decline in the ratio confirmed our earlier analysis. We’ve been emphasizing that the main trend in the ratio is up, which is yet another reason to think that the major trend in the precious metals sector remains down. Now, the fact that both metals moved higher while the ratio moved lower is a confirmation of the general tendency for the metals and ratio to move in the opposite directions.

Since the recent decline was just a verification of the breakout, higher ratio values – and lower gold and silver values – are to be expected.

Summary

Summing up, the big decline in the precious metals sector appears to be finally underway, and it’s likely to touch silver as well as gold. In fact, due to the greater volatility in the short run, silver is quite likely to decline even more than it’s yellow, precious counterpart.

The following months are not likely to be pleasant times for anyone who refuses to jump on the bullish bandwagon just because prices moved higher in the previous months, but what’s profitable is rarely the thing that feels good initially. Forecasting silver’s upswing without a bigger decline first is likely to be misleading. There will most likely be times when silver is trading above $100 (and perhaps above $200) but they are unlikely to be seen without being preceded by a sharp drop first. The same goes for the silver stocks – they are likely to soar, but not without plunging first.

Naturally, the above is up-to-date at the moment of publishing and the situation may – and is likely to – change in the future. If you’d like to receive follow-ups to the above analysis, we invite you to sign up to our gold and silver newsletter. You’ll receive our articles for free and if you don’t like them, you can unsubscribe in just a few seconds. Sign up today.

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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Przemyslaw Radomski, CFA, is the founder, owner and the main editor of SunshineProfits.com.

Spanish Conquistadores invaded the Inca Empire in 1528 to steal their silver and gold.