Silver Forecast: Approaching Short-Term Top Within Major Long-Term Bottom

Friday, January 13, 2017

silver bars

It is important that precious metals investors keep multiple time horizons in perspective as they make their investment decisions. Often the focus is on the day to day gyrations in the prices of silver and gold. Yet it is critical to revisit the longer-term perspective on a regular basis, as the price action currently being seen has the potential to set the silver market on an important course lasting well into the next decade.

Silver Price Short-Term Perspective

On a shorter-term six-month basis, we had been observing the decline in silver prices since August, and noted over the last several weeks that the slope of the decline was forming an inverse parabolic curve, shown below in blue. Specifically, had this rate of decline continued, silver would have approached an infinite rate of loss by mid-January.

Of course, one of the most unique fundamental properties of silver and gold is that their values will never go to zero. The precious metals have never been worth zero in 5,000 years of human history, and they never will.

Thus, when the slope of a short-term decline approaches such an infinite-negative rate, we know that a breakout higher must occur. Such is a tradeable event for those so inclined.

We can see this short-term breakout over the course of the last 10 days, as silver broke the inverse parabolic curve and has now risen to just below $17.00 in the spot market, as of January 12 (SLV fund used above for proxy).

Silver Price Intermediate-Term

The intermediate-term perspective for silver becomes much more complex, with the potential to scare many investors out of the market due to expected volatility.

Another way to view the inverse parabolic curve is through the short-term steep wedge formation, labeled on the chart below, which had formed within the primary blue declining channel since the July high of $21.25. Indeed, from the chart below, we can see that the short-term wedge has broken higher.

However, we caution traders that wedges of this degree of steepness do not always represent the final bottom to an intermediate decline. The old investment adage says: “The steeper the trend, the less important the break.” In this case, because the wedge was so steep, it is quite possible for silver to revisit recent lows near $15.75, or even make nominal new lows in the low $15’s, during Q1 2017.

The more critical breakout will be of the primary blue declining trend channel, shown above. While prices could take a number of paths to reach this important test, our best expectation is for several violent $1-2 per ounce price swings to result in a break of the primary trend by late April. We show this expected price action on the chart above in green.

Once the primary decline from the July highs is broken, we will have a fairly reliable confirmation that the low for 2017 has been finalized.

Silver Price Long-Term

Those investors not interested in trading these price swings should keep the next chart in mind as they evaluate the silver market. Below is shown silver’s price action from the 2011 high -- near $49 per ounce -- through the present, extended out to 2018:

From this perspective, we can see that after losing nearly 70% of its value in the last four years, the wild gyrations from 2013 through 2017 actually represent a long-term basing pattern. This basing action is taking place underneath the $25/oz level.

Basing patterns of this sort are powerful setups for the next bull market, and represent an ideal opportunity for long-term accumulators of either physical metal or strong mining equities. However, they wear many short-term investors out, as the price swings higher and lower for years, making little progress as a sum.

Make no mistake, this is exactly what should happen amidst a basing pattern, as metal is exchanged amongst investors repeatedly, eventually finding its way into “strong hands” who will not sell it at current prices.

A major principle of technical analysis is: “The longer the base, the bigger the move.” In silver’s case, the basing price action underneath $25 could last well into 2018. In sum, we would be looking at a nearly 6-year basing formation, which would set the backdrop for the next major price advance.

Silver Price Very Long-Term

We now zoom out a final level to view silver’s price action since 1980.

From this perspective, we note that the bottom expected in first-half 2017 should correspond with the long-term (magenta color) rising linear trend line, which has served as support since 2003.

Takeaway On Silver Prices

In this analysis, we are not of the opinion that silver prices are going to skyrocket this year or next.

However, a clear basing pattern has been forming in the historically-monetary metal, at exactly the level where it should to keep the 2003 – 2017 rising trend intact.

The basing process underway appears violent and filled with false-starts for those focused on the short-term price action. These gyrations can indeed represent opportunities for short-term traders to make a profit, while the underlying message of the market is of a commodity forming a 5-6 year basing pattern underneath the $25 per ounce level.

From such a base, a strong move should be expected to emerge by the terminal years of this decade, with an obvious target being a third test of the $50 level (previous attempts being 1980 and 2011).

Those quietly accumulating silver bullion or strong mining equities during this basing process will likely be rewarded within five years, although the price to pay for such an opportunity is going to be intense volatility every few months along the way.




FREE Silver Phoenix 500 Newsletter!

  • Fresh insights on the Silver market and the economy
  • Leading authors from around the world
  • FREE
  • Stay informed!!

Christopher Aaron

Christopher Aaron began his career as an intelligence analyst for the CIA and Department of Defense. He served two tours to Afghanistan and Iraq between 2006 - 2009, conducting pattern-of-life mapping for military leaders.

Mapping shares similarities with technical analysis of the financial markets because both involve the interpretation of repeating patterns found in human nature. He is the founder of iGold Advisor, providing research on the precious metals, and iGlobal Analytics, featuring technical analysis of the global capital markets.

Christopher speaks regularly on the cyclical patterns found within the financial markets and on international policy. He has been featured in the New York Times and NPR news amongst other publications.