Silver Market Analysis: Technical Indicators Suggest Strong Bullish Trend Amid Market Volatility and Economic Uncertainty

The iShares Silver Trust (NYSEARCA:SLV) is an ETF designed to provide investors with a convenient and cost-effective method of gaining exposure to spot silver (XAGUSD:CUR) prices. The ETF aims to track the performance of silver, which serves as a store of value and a hedge against inflation. Investing in SLV enables investors to access the benefits of silver without the need to physically store or manage the metal. The ETF represents the optimal choice for those seeking exposure to the silver market, offering advantages such as convenience, liquidity, diversification, and low costs. Currently, the SLV price is experiencing a short-term drop, which creates an attractive opportunity for long-term investors to accumulate positions in the silver market.

This article provides an overview of the current state of the silver market by analyzing historical data, recent price trends, and market risks. Additionally, it expands on a previous discussion of the silver market. The spot silver price has risen by 160.65% from its March 2020 low of $11.64 to its February 2021 high of $30.34. This price increase has generated bullish inverted head and shoulder patterns, signaling the potential for further upside in the silver market. Furthermore, the emergence of cup and handle patterns and bull flags suggests that the silver market is developing a robust bullish price pattern on long-term charts. In 2022, the silver market is experiencing robust demand. The recent correction in the silver market is a positive sign and represents an excellent opportunity for long-term investors.

Supply & Demand for Silver

In 2022, inflation in the United States has surpassed the record high of the past 40 years. To address the issue of high inflation, the Federal Reserve has increased interest rates above 4%, although inflation is expected to remain the most significant concern in 2023. During 2023, the gold market is expected to remain strong due to high inflation and the increasing efforts by central banks to increase gold reserves. However, silver is in greater demand than gold due to its affordability, industrial usage, and monetary value. Compared to gold, silver is less expensive and more accessible to a broad range of investors seeking to preserve their wealth during periods of high inflation. Additionally, silver has a wide range of industrial applications in fields such as electronics, medicine, and solar panels, leading to increased demand during high inflation when demand for goods and services generally rises. Silver is currently in high demand for the production of solar cells that generate green electricity, and the electronic industry is experiencing increased demand due to the rapid expansion of PV energy in 2022.

Moreover, silver is considered a hedge against monetary instability during periods of high inflation. Its value is greater than gold due to inadequate supply and high industrial demand, with a significant decrease in physical stocks held in New York and London’s physical hubs. Industrial demand accounts for nearly half of the substantial demand for silver, according to data from Metals Focus. Recent technological advances have driven the demand for silver, affecting its prices. Global silver production has actually decreased, with the Silver Institute reporting that the silver supply in 2022 was only 843.2 million ounces, close to the 2016 peak of 900 million ounces. However, the demand for silver in 2022 is significantly higher than in 2016.

The Next Buying Opportunity for Investors

The preceding article examined the long-term outlook of the silver market, whereas this article will delve into the recent decline in the market for long-term investors. The price range between $30 and $32 has historically been a significant resistance level, as the market has never closed above this range on an annual basis. The quarterly chart indicates the formation of a cup and handle pattern, with the cup taking shape between the 1980 and 2011 highs, and the handle currently emerging from the 2011 high. The 2020 low of $11.64 appears to be the final low, based on the quick reversal and subsequent inverted head and shoulders pattern. Once the handle is formed, silver buyers will likely re-enter the market, as it provides an attractive entry point for investors at a lower price, while the cup shape indicates that the price is undervalued and has growth potential.

The price of silver has seen a significant uptick over the past few weeks, and the chart shows a bullish pattern of multiple bull flags (blue dotted lines and yellow lines). The first bull flag’s flagpole was from the $4.01 lows in 2001 to the $49.82 high in 2011, indicating a consolidation within a broad range. A quarterly close above $31 would signal a bull flag breakout, leading to a quick rally to the $50 region, completing the handle formation. However, a breakout above $50 would break the cup and handle pattern, resulting in significantly higher silver prices. The second bull flag is depicted by the yellow lines, and the price is currently consolidating in a wide range between $20 and $31 to form a bull flag, with the 2020 lows of $11.64 to the 2021 high of $49.82 representing the flagpole. A breakout above $31 would break the second bull flag, resulting in a potentially explosive move in the silver market. In a prior discussion, the range between $19 and $20 was identified as an attractive buying opportunity for silver investors to increase their portfolio holdings. The RSI also appears supportive at the 50-level, further adding to the potential for higher prices.

Recent Development in Silver Market

The yellow bull flag depicted in the above chart is further clarified in the weekly chart below. The rapid recovery of silver’s price from its low of $11.64 in 2020 and the breakout from the neckline of an inverted head and shoulder pattern in July 2022 have confirmed the existence of robust bullish price patterns that are likely to provide a strong basis for future price increases. The blue dotted trend lines indicate the formation of a strengthening bull flag, and the current correction of the price towards the red trendline, hovering around the range of $19-$20, provides a long-term buying opportunity, backed by the rounding bottom pattern observed on the quarterly chart. The latest rounding bottom pattern, from May 2022 to November 2022, reinforces the robust support level of $19-$20.

The short-term outlook for the silver market is bullish, as indicated by the inverted head and shoulder pattern on the daily chart. A potential buying opportunity for silver investors is highlighted in the weekly chart below, where strong support between $20 and $22 is denoted by the red dotted lines. Given the high volatility of silver, any market correction tends to exceed the trading stops before undergoing a rapid reversal. As a result, traders entering the market should utilize wide stop-loss orders.

Risk Factors

Inflation is expected to persist in the long term, and the Federal Reserve is anticipated to maintain high-interest rates for an extended period, which will increase the cost of borrowing money. As a result, the demand for silver as an investment may decrease, resulting in lower prices. It’s important to note that the cup and handle pattern does not guarantee future price appreciation, and financial markets are always subject to risks and uncertainties. Fears of a recession could decrease industrial demand in 2023, which could have a negative impact on silver prices. Tightening monetary policy by the Fed, combined with a rapid fall in inflation, could present a headwind for silver in the event of an economic downturn, as a significant proportion of silver demand is linked to industrial output. However, from a technical perspective, silver is only just beginning to recover and must break the $31 level as soon as possible. If the silver market falls below $18, the bullish outlook could be undermined.

Conclusion

Based on the above discussion, it appears that the silver market is experiencing robust demand, primarily driven by industrial output, which is expected to strengthen over time. The presence of the cup and handle pattern and bull flags suggests that the price action remains highly bullish, with the spot price of silver having increased by 160.65% since the Covid-19 pandemic, indicating a strong upward trend. The current correction in the silver market is considered an opportunity for long-term investors to buy in, with the $19-$20 level representing a significant support level to accumulate positions. A break above $31 would trigger a massive rally in the market, with an initial target of $35 to $50. Investors seeking exposure to the silver market may consider investing in SLV, which offers lower fees and expenses compared to physical silver holdings.