The white metal can truly soar in the upcoming years.
While I’m usually focusing on more short-term developments in the markets, in today’s market analysis, I’ll focus on silver and its long-term potential. As you can infer from the title, it’s nothing short of spectacular.
Of course, silver might not get there this or the next week, in fact, it will likely take months before silver moves above its previous highs, but my point today is to show you just how far the white metal can go. In the recent years, most of the spotlight was on gold (and cryptocurrencies), however, in the future, silver might play a much greater role.
There are myriads of fundamental reasons as to why silver is likely to jump higher, so I’ll keep this part short, while focusing more on the technical analysis of silver’s long-term chart. The one fundamental thing that I’d like to emphasize is that silver – out of all the elements – is the best conductor of electricity. Copper comes second and since it’s much cheaper than silver, it’s more widely used.
The AI, cryptos, and all-things electronics (not to mention electric cars) might be overhyped at this particular moment, but… It’s all a sign of where things are going in the long run. More electricity-based inventions and technologies. More and more of them will become mission-critical for businesses and life-critical for individuals. And there’s no substitute for being the best. In many cases copper can be used instead of silver, but in many others - it can’t, and it won’t. And with silver supplies declining… The future could truly be explosive for the silver prices!
Now, here’s how silver price has fared in the last 20+ years.
After a huge rally from below $5 to about $50, silver declined below $12, and then it rallied once again. It recently failed to rally above $30, which could trigger declines, but that’s not the only thing that’s visible on the above chart. There are critical bullish indications there as well.
One thing is that silver broke above the declining, red, dashed resistance line and the breakout was confirmed. This means that it can now rally much higher.
The other thing is that silver has a triangle-vertex-based reversal point in a few months, indicating that even if we see a big decline here, it could bottom relatively soon (from the long-term point of view) and launch a massive rally then.
Silver’s long-term cyclical turning point also suggests an important turnaround at the turn of the year. If silver declines here, this might be where it bottoms and soars from there. That is IF silver declines in a major way from here at all. It might or might not be the case. If there’s no major decline and silver simply soars soon, based on its above-mentioned breakout, then the cyclical turning point could imply a more important top that starts a short-term correction.
Either way, the really long-term outlook for silver is bullish.
How far can silver soar?
There’s an interesting technique that’s been proven particularly useful when determining silver’s topping price levels that we can apply right now.
The technique is called the Fibonacci extensions, which is the inverse of the – more popular – Fibonacci retracements. Simply put, it’s about how many times the price can extend its previous price move (in this case: rallies) before topping (or bottoming if applied in a different way).
The remarkable thing about silver is that all previous major tops during its bull market formed in tune with this tool.
I mean the 2006, 2008, and the 2011 top.
Here’s how it worked:
In all cases, the starting point was the same – the 2002 top.
Multiplying the size from that top to the 2004 top by 2.618 (marked with orange) created a target at $13.63 – in 2006 silver topped just a little above this level.
Multiplying the size of the move from the 2002 top to the 2006 top by 1.618 (marked with green) created at target at $21.22, which is very close to where silver topped in 2008.
Finally, multiplying the size of the move from the 2002 top to the 2008 top by 2.618 (marked with grey) created the target at $47.74, which is very close to where silver topped in 2011.
After that top silver entered a multi-year bear market, but it’s been rallying since 2020.
Where could silver form its next long-term top? Well, if the history rhymes once again (just as it’s likely to), then we can expect the size of the move from the 2002 top to the 2011 bottom to be multiplied by the Fibonacci extensions once again. This creates targets at around $75-77 and $120.
When I’m writing this, silver is trading below $30, so it might be difficult to imagine that it would be likely to more than double (or even quadruple!) it’s current price. But – and this comes from someone, who was buying silver below $5/oz. – these things really happen.
Much has been written about silver’s extraordinary fundamental situation, and it’s not my point to discuss it more here, and I don’t want to discuss silver’s near-term outlook either (I’m doing this in my other articles), but as far as silver’s long-term technical potential – I can say that it looks truly amazing.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief