Silver Breakout or Silver Fakeout? – Where to Next for Silver?

In our newsletter last week we pondered the question “Has the silver breakout started?

With the passage of just another 6 days we reckon we can now say, yes it has!

Silver in New Zealand dollars has moved sharply higher since last week. 

Looking at the 4 year chart below, we can see silver has clearly broken out of the multiyear wedge formation it had been in.

For the first 2 weeks of July, the silver price had been hovering around the multiyear downtrend line after edging above it in late June. So we were waiting on a further move up.

But now we can see it has clearly broken higher out of this range.

NZD silver vs USD Silver Chart Showing a Silver Breakout

So this chart would seem to indicate that silver has broken out and will now head higher.

Or does it?

Silver Breakout or Fakeout?

We’ve seen a number of “head fakes” from silver over the last few years:

  • In April 2017 silver touched $27.00 before taking a dive all the way down to the low $20’s…
  • NZD silver moved higher in late 2017. Briefly nudging up to $25.50 before falling back sharply….
  • Then in June 2018 silver once again “head faked” a move higher. Touching $25.00 before again returning to the low $20’s…

So is this just another silver fake out?

Is the Silver Breakout For Real This Time?

In early 2019 we saw the silver price repeatedly touch the downtrend line that extends back to mid 2016.

Silver then consolidated before moving above the downtrend line in June. Now, as noted above, silver has pushed sharply higher.

What’s Different About This Current Rise in Silver?

  • Silver in NZD is also now above the $23.50 level. A price it hasn’t bettered for over a year. 
  • The price of silver has also made a higher high for the first time this year.
  • USD silver has also broken out of the same pattern. So unlike the previous fake-out moves, silver is rising in the US currency also. The previous moves were mostly driven by the weakening Kiwi dollar. As can be seen by the fact that the USD price of silver did not make noticeable highs on these prior occasions (see the lower half of the chart which shows the silver price in US dollars). 

There are also some unusual goings on in the futures market. They share some similarity to what occurred back when Warren Buffett bought silver in the mid 1990’s.

The below video from Mike Maloney highlights these unusual occurrences with some excellent charts from Nick Laird’s goldchartsrus.com. Such as the one below.

This chart shows the monthly change in silver repositories, funds and ETF holdings is the 3rd highest in history! Someone is taking a very large position in silver.

https://www.youtube.com/watch?v=X1EnxOwXC7E

Silver Bottomed Out 4.5 Years Ago

The long term chart below shows that silver in NZ dollars bottomed out back in late 2014. But it has been in a downtrend for the past 3 years.

It looks to us that this might now have changed. The uptrend or bull market may be re-emerging.

NZD silver vs USD Silver Chart Long Term Breakout Started

After the Breakout – Where to From Here For Silver?

In New Zealand Dollar terms the key level to see breached is at $30 (red/green line in the chart below). As this is the high reached in 2015, after silver bottomed in 2014. Bettering this level would therefore form a higher high.

NZD silver vs USD Silver Chart with Fibonacci Retracement levels

Thus opening up the various price targets between there and the all time higher above $60.

These targets are shown by the blue Fibonacci retracement lines. We can expect these overhead resistance levels to be more difficult to overcome.

Learn about Fibonacci lines and other technical trading indicators here: Gold and Silver Technical Analysis: The Ultimate Beginners Guide Updated

200% Upside in Silver From Here to the All Time High

Silver also looks to be forming a multi-decade “cup and handle” formation. The below chart is from a year ago. Silver is indeed making a break through this level now. The rest of the handle could be expected to form. Thereby taking silver back up to US$50. A 200% upside move.

Such a massive long term pattern shows silver has been building a base of support for over two generations. So a bull market lasting many years could be just beginning.

Multi-decade “cup and handle” formation in Silver

Source.

Could Silver Have Even More Upside than US$50?

The US dollar silver price in 2011 at $50 only matched the 1980 all time high.

Even though today there are vastly more dollars in circulation than in 1980.

The interesting chart below from Hubert Moolman shows the silver price relative to the US monetary base (in billions of dollars).

Chart of silver and the US monetary base since 1919

Moolman notes:

“In 1980, the all-time high was 0.361, whereas the ratio is currently at around 0.004. The US monetary base is currently around 3 304 billion dollars (or 3.304 trillion). Therefore, if silver was today at its 1980 value, relative to the monetary base, it would be around $1,193 (3304*0.361).

So, in terms of US dollars in existence, silver is trading at 1.24% (14.84/1193) of its 1980 high – it is the bargain of the century.”

Source.

Moolman also created a projection chart back in June before the current silver breakout began…

Chart showing silver upside price projection based upon previous bull market moves

“On the chart, the first phase of the silver bull market was from 1993 to the end of 2001, and the second phase is potentially from 2001 to the end of 2015.

It appears that there is a similarity between the two phases. I have drawn some lines, and marked some patterns to show how the two phases are interwoven and could be similar.

The first phase is marked 1 to 3, in black, and the second 1 to 3, in blue. Both of the phases appear to occur within a broadening channel, from which they both broke down (out of the channel), after point 2.

Outside of the channel there was a triangle-type consolidation. The first phase managed to get back inside the broadening channel after breaking out of the triangle-type consolidation. If the current pattern follows, then we could have a big rally, after breaking out of the triangle consolidation.

Based on this comparison, buying silver now is like buying silver back in 2003 when it was under $5 per ounce.”

Similarly to the silver vs US monetary base projection, this chart also has a seemingly crazy price target for silver above US$900.

But even if these numbers don’t come into play, just reaching the old highs offers a 200% upside. With very little downside currently.

Making it an excellent time to buy silver.

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2 thoughts on “Silver Breakout or Silver Fakeout? – Where to Next for Silver?

  1. Pingback: Silver is the Star this Week - Gold Survival Guide

  2. Pingback: RBNZ Slashes OCR - The Race to the Bottom is Speeding Up and NZ Won’t Be Left Behind! - Gold Survival Guide

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