Silver Breakout or Silver Fakeout? – Where to Next for Silver in 2023?

In our newsletter last week we wondered if we are seeing “the start of a full fledged breakout in silver”.

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

Estimated reading time: 7 minutes

Silver in New Zealand dollars has moved sharply higher over the past week. 

Looking at the 3 year chart below, we can see silver has clearly broken above the downtrend line that has been touched multiple times since the high of 2020.

At the start of the year it did a head fake above this line, before dropping all the way back down below $33.

But now we can see it has clearly broken higher above the downtrend line.

NZD Silver chart showing a 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 in the past 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…
  • And as noted above already, at the start of 2023 silver again faked a breakout…

So is this just another silver fake out?

Is the Silver Breakout For Real This Time?

In 2022 we saw the silver price repeatedly touch the downtrend line that extends back to 2020.

Now, as noted above, silver has pushed sharply higher and is clearly above the downtrend line.

What’s Different About This Current Rise in Silver?

  • Silver in NZD is also now above the $40 level. A price it hasn’t bettered since 2021 (and even back then it was just an intraday spike before falling back below $40 again). 
  • 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 (see lower half of the chart below). So unlike the previous fake-out moves listed above, silver is now rising in the US currency also. Whereas the moves in the previous years were mostly driven by the weakening Kiwi dollar.
NZD silver vs USD Silver Chart Showing a Silver Breakout

Silver Bottomed Out in 2014

The long term chart above shows that silver in NZ dollars bottomed out back in late 2014. It made a sharp run higher in 2020, reaching a high of $45. But since then 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. It is now likely we see silver challenge the 2020 highs of NZD$45 and US$30 in the coming months.

After the Breakout – Where to From Here For Silver?

In New Zealand Dollar terms the key level to see breached is at $45 (red/green line in the chart below). As this is the high reached in 2020, after the big run higher when the Covid-19 currency printing was at full noise. But it is also the 61.8% Fibonacci retracement level. Bettering this level would therefore also form a higher high in the move up since the 2014 bottom. Opening up for a move towards the all time high above $60.

NZD silver vs USD Silver Chart with Fibonacci Retracement levels

In US dollar terms the next overhead resistance level, the 38.2% Fibonacci level at about $26 is not far above current levels. Then the major resistance will be the 2020 high at $30. This is also the 50% Fibonacci level. If $30 was broken, then the 61.80% Fibonacci level is next at almost $35. Then the 100% level at US$50. These targets are shown by the blue Fibonacci retracement lines. We can expect these overhead resistance levels to be more difficult to overcome. But once $30 is broken they look likely to be challenged.

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

100% Upside in Silver From Here to the All Time USD High

Silver also looks to be forming a multi-decade “cup and handle” formation. Having broken above the 2 red channel lines of the handle in 2019, the rest of the handle could be expected to form. Thereby taking silver back up to US$50. A 100% 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. Once the all time high at $50 is broken, there would be a price target of twice the move from the early 1990’s low. This would take silver up near to $100.

Multi-decade “cup and handle” formation in Silver

Could Silver Have Even More Upside than US$50?

The US dollar silver high of $50 in 2011, 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.

Silver to Monetary Base Update for 2023:

The above numbers were as of June 2019. Today the US silver price is higher at $25, but so is the US monetary base. Despite pulling back through 2022, the huge currency printing during Covid-19 means the US monetary base still sits at $5,321 billion (5.321 trillion). So at 0.005 (25 / 5321), the ratio is not that much above what it was in 2017 (0.004). If silver was today at its 1980 value relative to the monetary base, silver would be around US$1,920 per oz! (5321 x 0.361).

Now, we’d have to admit that a silver price of $1,920 seems pretty out there. But in the 1970’s precious metals bull market, the price went up by something like 50 times. A rise from $25 to $1900 would be an increase of 76 times. Definitely more than the 1970’s but it doesn’t sound quite so nuts when compared in that way.

But even if these seemingly crazy numbers don’t come into play, just reaching the old highs offers a 100% upside. We can’t think of any other financial assets or commodities that are still to better their 1980 high. That nows seems like a case of when, rather than if.

Making it an excellent time to buy silver.

Editors note: Originally posted 24 July 2019. Updated 11 April with all new charts and prices.

3 thoughts on “Silver Breakout or Silver Fakeout? – Where to Next for Silver in 2023?

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