Dips in Silver Prices are a Buying Opportunity – Dollar Relief Rally will be short-lived
Since gold and silver are “joined at the hip” much of what is written about gold and the dollar in the parallel Gold Market update applies equally to silver, so here we will look mainly at the points that need to be made separately for silver – Clive Maund
The first point that we will look at is that silver’s giant Head-and-Shoulders bottom pattern is down-sloping compared to the flat-topped one forming in gold, as we can see on its latest 8-year chart shown below. This is because silver tends to underperform gold in the late stages of bear markets. One important effect of this is to camouflage the incubating bull market in silver, as investors tend to take one look at its long-term chart and say “Well, that’s not much good is it? – it’s still going down.” This gives silver – and silver stocks – considerable “snapback” potential once both it and gold break out of their respective base patterns, meaning a sizable rally that for many investors “comes out of the blue”. Silver at this point is still spluttering along sideways at a low level marking out the Right Shoulder of its HS bottom pattern, but as the “neckline” of the base pattern is down-sloping, it won’t take all that much for it to break out of it. Once it does it will encounter a zone of quite strong resistance in the $26 – $28 zone at the underside of the earlier top pattern. Note the big volume buildup as the Right Shoulder has formed, which is bullish, as it is with gold, although in the case of silver, there has not been so much upside volume, which is why its volume indicators have not advanced much – yet.
On silver’s latest 6-month chart we can see that it made a plucky but short-lived attempt to break above a line of resistance in the $17.30 – $17.50 zone last week. It failed and is now vulnerable to reacting back on a short-lived dollar relief rally, although it shouldn’t drop far, probably no lower than $16.80, and any such drop will be viewed as presenting a buying opportunity, especially in the better silver stocks.
The latest COT for silver is considerably better looking than the latest COT for gold, which is rather surprising, and is viewed as an indication that any reaction will be minor, and also supports our contention than when silver does break out of its base pattern, the resulting rally could be sharp.
Here’s Why You Must Own Silver in 2018
While Gold is very close to a major breakout (in price) its strength has not filtered down to Silver yet. Gold is 3% away from a major breakout and comfortably above its long-term moving averages. However, Silver is well below its 2016 high and is currently battling its 200-day moving average. But that is okay. Silver typically lags and underperforms Gold until Gold gains momentum or breaks key resistance. A major breakout in Gold this year and its effect on Silver is just one reason why Silver could have a big year.
If and when Silver breaks above its 2017 highs, we can declare its bear market over (in terms of time). The chart below plots all of the major bear markets in Silver. They all end at the point when Silver begins to make higher highs and rises in an impulsive fashion. Silver’s bear market was the second worst by price and potentially the worst in terms of time.
The next chart shows the rebounds in Silver from the endpoints in the previous chart. From the three endpoints Silver rebounded significantly in the next 12-15 months. We also included the 2008 crash from which Silver rebounded 100% in the following 13 months.
Turning back to the present, we find $20 on a monthly closing basis to be the most significant resistance for Silver. The chart below is a plot of monthly closing prices. It is quite clear that a monthly close above $20 (the 2016 high) could kickstart a good run for Silver.
Moving from the very long-term to the present, we note that Silver faces initial resistance at trendline 2 as well as the 2017 highs near $18/oz. That stands between Silver at present and the important $20 resistance (which is also shown at trendline 1).
Silver has often rebounded nearly 100% within 12-15 months after bad and long bear markets. History says Silver is ripe for a similar move over the next 12 to 18 months. Since Silver follows Gold, a breakout in Gold could be a huge catalyst for Silver to test and break resistance at $20/oz. If that happens, Silver would be on its way to another, typical substantial rebound. It has happened before and we expect it will happen again. We already own a few juniors with the best silver deposits but we continue to look for junior explorers and silver plays with 5 to 10-fold potential that could benefit from a breakout in precious metals. – Jordan Roy-Byrne
Major Breakout Alert in Gold and Silver as US Dollar Crumbles
With the dollar sliding, technical analyst Clive Maund says the outlook for gold and silver could not be better.
Today has been momentous because the dollar has finally broken down from its giant 3-year long Broadening Top pattern, and fundamental developments suggest that it will continue to weaken, and since it has now broken down decisively, the rate is decline is likely to accelerate. These fundamental developments include the imposition of tariffs, long proven to be self-defeating and economically destructive, which invite retaliation and will slow the global economy, and the administration stating that it wants to see a weaker dollar as a means of increasing competitive advantage, which again will invite a “beggar thy neighbor” response from other powers.
Thus the underpinnings of the stock market rally are being kicked away. The outlook for the dollar is now grim, but on the other hand the outlook for gold and silver could not be better, and they are now limbering up to break out of their giant Head-and-Shoulders patterns, and once they do will enter a vigorous bull market. Gold and silver stocks will soar when that happens, because after years of tough conditions, producing mining companies are slimmed down and efficient and rises in metal prices will go straight down to their bottom lines.
For my subscribers, on Jan. 13, I presented 49 of the best gold and silver stocks for the imminent precious metals sector bull market. In the environment that we will soon be moving into you will basically be able to “throw darts” and pick winners in this sector, while most of the rest of the stock market goes into meltdown.
As we can see below, gold is now in position to break out of its giant base pattern that has taken almost five years to build out. The talk about it being suppressed by manipulation is largely “sour grapes”—the plain fact of the matter is that versatile investors were partying elsewhere, in the broad market, the FANGS, Bitcoin and Cryptos, etc., most of which will soon hit a wall.
Ditto silver, which will take a lot of investors by surprise because it has been more depressed, but has the capacity to rally more strongly.
Please check back for new articles and updates at Commoditytrademantra.com