Where Are We in the Psychology of the Silver Market Cycle?
This article looks at the phases of investor psychology in market cycles. Then compares these phases to the silver market cycle over the past 10 years or so, to see where the silver market is currently. Therefore helping to indicate where silver is going from here and aiding with deciding when to buy silver…
Psychology of a Market Cycle
This infographic from cheatsheet.com clearly spells out the emotions and feelings that investors experience as a market fluctuates. From depression, at the very bottom of a market, to euphoria at the top.
This got us thinking where are we in the psychology of the silver market cycle?
The Psychology of the Silver Market Cycle
Silver has not exactly been the outstanding performer in recent years. But it was a different story in the years leading up to 2011. So if you’ve been holding silver since 2011 you’ve possibly been through a roller coaster of investing emotions.
We’ve got a 12 year chart of silver in New Zealand Dollars below. Upon this we have added the emotions that silver buyers may have been through since 2009. These phases are inspired by the above infographic.
You can see that silver in New Zealand dollars has just about followed the cycle of emotions exactly since 2009.
After silver fell in price in early 2009, we saw Disbelief that we were seeing a real rise. Rising through the emotions of Hope, Optimism, Belief and into Thrill and Euphoria in 2011 as silver peaked.
Then we went through Complacency later in 2011, as silver rose after the initial sharp fall. Followed by Anxiety as the plunge resumed. Then Denial, Panic and Capitulation. Before silver bottomed out in late 2015 with Anger.
Silver Finally Out of Depression?
In 2018 silver looked to have still been stuck in the Depression phase, even though the bottom most likely already occurred in 2014.
We saw the silver price rise since the 2014 low, but only in a slight uptrend. This uptrend was further obfuscated by the fact that silver fell in 2016 and then really just moved sideways right the way through to mid 2019.
While silver didn’t made a new major low, it didn’t reached a new high until later in 2019.
Therefore most people simply didn’t believe silver would ever manage to rise much higher.
So with the benefit of hindsight we can say silver finally moved out of depression and into the Disbelief phase in the second half of 2019.
Sentiment towards silver was very poor back then, even though the price looked to have bottomed out.
But this is exactly the time that we often see a decent rise in price to push into the Disbelief phase. This is exactly what we saw in late 2019. Because Disbelief simply means that the rise in price is not expected to be sustainable. So there were few people “on board” as the majority expects the rise to be temporary.
(For more on the topic of precious metals cycles see: Gold Cycles vs Property Cycles: When Will Gold Reach Peak Valuation?)
Where to From Here for the Silver Cycle?
So that was the psychology of the silver market cycle from 2009 to 2019. Where to from here for silver?
Currently in the Hope Phase for Silver?
Back in March we saw silver plunge all the way down to $12 per ounce, due to the COVID-19 crash in just about all markets.
But silver then staged a powerful rally, culminating in a rise all the way to $45.
Our guess is this is the start of the Hope phase. It’s where we start to see more new first time buyers emerge.
So new money is starting to move into silver. This is likely to put a floor under each surge in price. That is, while there will still be corrections, each one is likely to be bought and so the price will continue to move higher.
So we are likely in the phase in the silver market cycle where, after going nowhere for a while, we instead see a sustained rise in the silver price.
Cup and Handle Pattern Suggests Higher Silver Prices Ahead
There is also an interesting pattern playing out that suggests much higher prices ahead. Dating all the way back 40 years.
The chart below depicts a very long term “cup and handle” pattern in play for silver. (Note: It is silver in US dollars as stockcharts doesn’t have data for NZD silver that goes back that far. Although it would look fairly similar in NZ dollar terms too).
A cup and handle pattern is a bullish continuation pattern. Simply put this means a rising trend that has taken a breather but looks like continuing.
This silver chart is a near perfect example of this trading pattern. Silver made a “double top” high at $50. First in 1980, then reaching the same level silver in 2011. This “U’ shaped pattern is the “cup”. Then over the last 9 years silver looks to have formed the “handle” of the cup. Where the price fell back in a downwards trending channel. Then in 2019 silver broke out from the falling channel that was the handle. In March of this year, silver retested this breakout, before the sharp rise through to August.
The pattern will not be complete until the $50 mark is broken. But now that is looking more like a case of “when” rather than “if”.
What is the Price Target for Silver Now?
There are different theories as to how high the next move might be, after the top of the cup is exceeded.
- It will the the height from the bottom of the cup to the top. In the case of silver this would be around $46 (i.e. $50 – $4). So the move higher after the pattern is complete would take silver up to $96.
- It will be the same as the retracement in the handle. So from the top of the cup ($50) down to $12 would be $38. That would indicate a move up to $88.
None of these are guaranteed, but this pattern does indicate a decent chance of higher prices ahead for silver.
So this pattern on top of the move into the “hope” phase for silver also makes now a solid time to buy silver. There are limited options in silver currently but you can see what silver coins are available here.
Or for more help in deciding when to buy silver (or gold) see: When to Buy Gold or Silver: The Ultimate Guide >>
Editors Note: This article was first published on 12 December 2017. Last updated 1 September 2020 with new “Psychology of the Silver Market Cycle” chart. Change from Depression to Hope phase. And addition of the cup and handle pattern.