$26 Near-Term Silver Price Target

Three months ago on August 8, 2016, I wrote an article entitled,

Gold To Thrive In A Fiat Ponzi With Negative Yield

in which I presented the following charts and said:

"Why would you want to own yen or euros with negative yield, when you can own gold? – the real money.  As an added bonus, there is no quantitative easing (QE) with gold.

It took gold approximately 7 months to advance $250 and overcome major resistance at $1,300/oz from a bottom of $1,050. A reasonable target could be $1,550/oz ($1,300 + $250) by March 2017 – 7 months from now. Silver could follow a similar pattern with a near-term target of $26/oz."

(Chart from August 8 article)

(Chart from August 8 article)

August turned out to be a short-term peak for silver. Silver staged a multi-year break out in July and is currently resting on the 5-year support trend line of $18. This is not unexpected given it had run up 50% to a high of $21 from January low of $14, while the Comex speculative long and commercial short positions were at an unprecedented extreme, some of the excess optimism had since then been worked off.

Looking ahead, I offer you the following 2, 5, 15, and 100-year silver charts. Consequently, I conclude the article with my near-term silver price target.

The 2-year chart shows silver broke out of the two year resistance level of $17.5 to reach $21 in July, and has fallen back to $17.5 which is now the new support level that also happens to be the 200-day moving average (200 DMA). It's highly unlikely for silver to fall below $17.5 with $21 as the next target level.

The 5-year chart shows the important trend lines of $18 and $26. Silver needs to stay above $18 to confirm the breakout, with the next major target level of $26.

The 15-year chart clearly shows that in early 2016 silver broke out of 5-year consolidation that started in 2011, and is now embarking on a new phase that appears to be a major bull run. Silver subsequently broke out of a major multi-year resistance level of $19 in July 2016 and should stay above $19 to confirm the uptrend.

(Chart from http://www.macrotrends.net/1470/historical-silver-prices-100-year-chart )

This 100-year silver chart shows silver is now testing the important 2-decade resistance level of $20. Once overcome, the next target levels are $25 (4 star), $30 (5 star), and $35 (6 star). If history is any guide, those target levels can be reached within months after silver definitively breaks out of the $20 level.

To quote again from my August 8 article:

"In the unlikely event that the global economy miraculously recovers and the Fed quadruples the Federal Funds rate from the current, miniscule 0.5% to say, a tiny 2% in short order, dividend stocks would crater, and US bond prices would crash with hoards of speculative liquidity and baby-boomer savings looking for a safe haven – not exactly the recipe for a gold bear market."

Either way (hike or no hike), there is no place for the gold (and silver) bull to hide.

Technically, the silver bull is intact and within 10% from assaulting the all important $20-$21 target level, it needs to stay above the 200 DMA of $17.5 and let the rising 200 DMA carry silver over the magic $21 hurdle. My silver target (set in the August 8 2016 article) of $26 by March 2017 remains a distinct possibility. I will update you when this moment happens, in the meanwhile sit tight and enjoy the ride.

All currencies are expressed in US dollars.

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I own physical silver and chair Prophecy Development Corp. (TSX: PCY) which is developing Pulacayo mining project with over 20 million oz of indicated silver resource. Also, I own 22.75% of Prophecy.

John Lee, CFA.

jlee@prophecydev.com