Silver Poised for a Significant Rally in 2024

The silver market is looking for a historical technical breakout in 2024 from the cup and handle pattern, observed on the yearly chart. These cup and handle patterns are formed from the 1980 highs to the 2024 highs and set the stage for significant price increases in coming years. The price action of the gold-to-silver ratio and bullish parameters observed on the weekly and daily charts further support a bullish outlook for silver, indicating a potential for a breakout and strong rally in 2024.

Additionally, declining liquidity in financial markets and robust industrial demand present the potential for higher silver prices, creating a favourable environment for investors and reinforcing the bullish sentiment. This article presents a long-term and short-term technical analysis of the silver market to identify the next direction of price movements and investment opportunities for investors. It is found that silver is exhibiting bullish forces and is poised to rise significantly.

The Rise of Cup and Handle Formation

The yearly chart for silver shows a strong bullish technical formation, observed by the cup and handle pattern. The cup of this pattern is formed from the 1980 highs to the 2011 highs, while the handle is formed from the 2011 to 2024 timeframe. This pattern indicates a strong bullish price action, likely to result in significant price increases in the coming years. The highest yearly close in the spot silver chart was observed in 2010, while 2011 was a bearish hammer.

Silver prices bottomed in 2008 due to the global financial crisis, which led to a sharp decline in commodity prices as investors sought safer assets like cash and government bonds. However, the subsequent rally in 2009 and 2010 was driven by aggressive monetary easing by the Federal Reserve, which lowered interest rates and implemented quantitative easing measures.

This increased liquidity in the financial system, fuelled inflation fears, and prompted investors to seek precious metals like silver as a hedge. Additionally, recovering industrial demand, particularly from emerging markets, and a weakening US dollar further bolstered silver prices in 2009, 2010, and 2011.

This strong rally resulted in a peak in 2011 followed by a strong price correction. After this significant correction, a significant bottom was observed in 2020, setting the stage for higher prices in the coming years. The increase in silver prices in 2020 was due to global economic uncertainty and market volatility caused by COVID-19, which led investors to flock to safe-haven assets. The unprecedented monetary and fiscal stimulus measures by central banks and governments worldwide fueled inflation concerns and drove demand for silver.

Additionally, the COVID-19 pandemic disrupted mining operations, leading to supply constraints. At the same time, increasing demand for silver in industrial applications, particularly in renewable energy technologies and electronics, supported higher prices. Moreover, the weakening US dollar created a perfect storm for a significant rally in silver prices throughout 2020.

The strong and quick rally in 2020 has formed the bullish hammer candle, which lies within the handle of the cup and handle formation as shown in the above chart. After forming strong bullish price action, silver prices are now challenging the neckline of this pattern in 2024, which is at $30-31. Multiple attempts at this level are likely before the breakout in 20204. Based on these bullish price actions, silver could likely attempt to reach $50 in 2024 due to the formation of bullish price action.

Silver Valuation through Gold to Silver Ratio

Another valuable indicator for predicting silver prices is the gold-to-silver ratio, which reflects the relative value of gold compared to silver. Historically, when the ratio is high, it indicates that silver is undervalued relative to gold, suggesting a potential buying opportunity for silver as it may outperform gold in the future. Conversely, a low ratio suggests that silver is overvalued compared to gold, indicating a potential selling point.

The gold-to-silver ratio chart below shows that the ratio has marked a top when silver has marked a bottom historically. The ratio tops in 2008 and 2020 which resulted in strong rallies in silver prices, as discussed in the yearly silver chart above. Recently, this ratio has marked a high in 2024, and this high, following the bearish formation of 2020 highs, indicates bearish momentum for the ratio. This bearish development indicates strength in silver prices. Therefore, the bullish candle right at the historical breakout point of the $30 region on the yearly chart indicates that silver could potentially break the $30 level and initiate a strong rally to $50.

Silver’s Explosive Potential Around $30

As discussed above, the yearly chart for silver points to a breakout in 2024, which is further supported by the price action seen in the weekly and daily charts below. The weekly chart below shows the development of an inverted head and shoulders pattern on a broader scale, which broke out in 2024. Silver price retested the breakout area which emerged as a strong buy signal on the charts. This strong buy is marked by the red circle in the chart below. The inverted head and shoulders pattern is also seen in the 2020 patterns, where the breakout of the neckline initiated a strong and quick rally.

However, the 2020 rally was different from 2024 due to the price currently challenging the yearly pivot of $30. This price fluctuation of around $30 in May and June indicates that silver is ready to explode in the coming months. The triple bottom formation at the head of this inverted head and shoulders pattern further supports this as the base pattern.

It is interesting to see that the daily chart also shows strong bullish formations, evidenced by quick and strong reversals around the strong support area. The chart clearly shows that the quick reversal around $26.25 indicates a strong buy signal, with a target of $50. This target is calculated on the yearly chart as the next strong resistance. The resistance at the key level of $32.50-$32.75 has resulted in another support level and formed a rounding bottom. This formation is another signal of a strong surge in silver prices in the coming months.

Silver Set to Benefit from Financial Market Uncertainty

The chart below shows that commercial bank reserves at the Fed have declined sharply in 2024, indicating shrinking liquidity in the financial markets. This reduction in liquidity may positively impact silver prices. During periods of financial uncertainty and reduced liquidity, investors often turn to safe-haven assets to protect their wealth.

While gold is traditionally the preferred safe haven, silver also stands to benefit from this trend. As investors seek alternatives to more volatile financial instruments, the demand for silver could rise. Additionally, decreased liquidity can lead to more pronounced price movements, potentially resulting in higher gains for silver.

Moreover, the latest employment data shows a healthy addition of 206,000 jobs in June, as shown in the chart below. However, the downward revisions for April and May indicate that the economy may be slowing.

On the other hand, the cyclical sectors are still adding jobs, as seen in the chart below. These sectors include manufacturing, construction, transport and warehousing. The job increases in these sectors highlight the rising industrial demand for silver, which further supports silver prices.

Moreover, the decline in temporary jobs signals that businesses are focusing on more stable, long-term employment, which can further sustain economic activity and increase silver demand. This combination of increased investor interest and solid industrial demand creates a bullish outlook for silver prices.

Final Thoughts

In conclusion, the silver market is poised for a significant breakout in 2024, driven by a combination of technical bullish formations. Historical trends in the gold-to-silver ratio and strong industrial demand highlight the potential for substantial price increases. Additionally, economic factors such as declining liquidity in financial markets, rising employment in cyclical sectors, and a shift towards stable, long-term employment further support the bullish outlook for silver.

With investors seeking safe-haven assets amidst financial uncertainty, silver is well-positioned to experience strong growth, potentially reaching $50 soon. As the price action suggests higher levels, investors might consider buying silver during price corrections. Strong support lies around $26-$29, with a target of $50.