Silver Poised for Strong Growth as Bullish Patterns Emerge

Recent trends highlight a growing demand for silver, driven by its use in renewable energy technologies, electronics, and the expanding electric vehicle market. Silver prices have been gaining strong momentum as demand surges. The prospect of lower interest rates and a weakening U.S. dollar makes silver an attractive long-term investment. This article discusses the technical analysis of the silver market to predict the next direction. It is observed that prices are on the verge of breaking the $30 level, which could open the door to a potential target of $50.

Growing Demand for Silver in Industrial Sectors

Silver has strong demand in industries such as jewellery and silverware, photography, batteries, and superconductors. Industrial demand has grown in recent years due to the increased need for renewable energy, electronics, and automotive applications, leading to supply shortages as silver demand increases. Moreover, interest rate cuts by the Federal Reserve lower the returns on savings and bonds, making silver more attractive as an investment. Lower rates also weaken the U.S. dollar, further increasing silver demand. Additionally, reduced borrowing costs boost economic activity and further increase industrial demand for silver in the electronics and renewable energy sectors.

The global renewable energy market is experiencing significant growth, as shown in the chart below. In 2023, the market was valued at approximately USD 1.14 trillion and is expected to expand to USD 5.62 trillion by 2033, with a compound annual growth rate (CAGR) of 17.3%. This rapid expansion in renewable energy is expected to further drive the demand for silver, especially in industries such as solar energy and electronics.

Moreover, global efforts to transform transportation infrastructure and the emergence of electric vehicles have increased the demand for silver. The growth in electric vehicle adoption further boosts the demand for electronics and solar panel installations, which have been key drivers of rising silver demand in the coming years.

The growth in the electric vehicle market can be seen in the chart below, which shows electric vehicle sales growth over the past decade. Global sales of electric vehicles reached 14 million, accounting for a 18% share of the total automotive market, an increase from 14% the previous year. As this growth is expected to continue in the coming years due to environmental concerns and government initiatives, the demand for electronic equipment and solar panels will rise, significantly impacting silver demand. According to the Silver Institute, silver has already faced supply shortages in recent years. These supply shortages and increasing demand will likely drive silver prices to new record highs.

Historical Price Development

The silver price dynamics can be understood by the long-term monthly chart below. It was found that the silver formed a bottom in November 2001 at $4.05, initiated a strong price surge, and continued to rally until 2008. This price increase was due to the weakening of the U.S. dollar, which made silver and other commodities more attractive as investments. During this period, the global economy was recovering from the dot-com bubble, leading investors to seek safe-haven assets to hedge against economic uncertainty and inflation. Additionally, a growing demand for silver in industrial applications, particularly in electronics and manufacturing, began to surge with the expansion of new technologies and emerging markets. This rising demand was coupled with a relatively constrained supply of silver, further pushing prices upward.

After hitting the top at $21.35 in March 2008, silver prices declined due to the global financial crisis. This crisis led to a widespread sell-off in commodities as investors sought liquidity and reduced exposure to risk. Economic contraction and reduced industrial demand, particularly in manufacturing and electronics, also contributed to the decline in silver prices during that period.

After the sharp drop in 2008, silver prices rose from 2008 to 2011 due to low interest rates and quantitative easing, which weakened the U.S. dollar and heightened inflation concerns. This spurred demand for silver as a safe-haven asset. Furthermore, industrial demand for silver in electronics and solar energy continued to grow during this period, adding pressure to an already constrained supply. Speculative investment also played a role, with silver becoming increasingly popular among investors looking for alternatives to traditional assets. By 2011, these factors combined to push silver prices to nearly $50 per ounce, marking a significant rebound from the lows in 2008. This surge was not sustained, as markets eventually stabilized, and speculative bubbles deflated, leading to a correction in silver prices after 2011.

The Next Move in Silver

After a price correction from $50 in 2011, silver underwent a deep correction from 2011 to 2020 and continued to consolidate within wide ranges. The above chart shows the sharp shadows marked as the “Low” in the chart. These lows have confirmed the long-term bottom in the silver market. The major low was formed after COVID-19 when silver prices rose due to increased demand for safe-haven assets and industrial use. Silver plays a key role in industries like electronics and renewable energy, which saw growing demand during the pandemic recovery, contributing to its price increase.

Moreover, after forming an inverted head and shoulders pattern in the monthly chart from 2021 to 2023, silver prices are attempting to break above $30. The September 2024 monthly candle is trying to close above this key level, and a breakout above it will likely initiate a solid surge to $50. This breakout is similar to the one after the 2008 crisis, as shown in the monthly chart above.

To further understand silver price behaviour, the weekly chart below shows the overall price structure from 2020 to 2024. It is observed that the historical bottom in 2020 was formed using an inverted head and shoulders pattern. The consolidations from 2020 to 2024 have formed another bullish price action, again in the form of an inverted head and shoulders pattern. Silver has broken through the neckline of this pattern, initiating a strong surge higher. After the breakout, the price forms a rounding bottom and prepares for the next strong rally above $30.

The strong consolidation from May 2024 to July 2024 has formed a descending broadening wedge pattern, which is a bullish pattern. Moreover, this pattern was broken last week, and silver is heading to higher prices. The first resistance lies between the $32-$32.50 level, and a break above this level will open the door for $50, a long-term price target for silver.

Bottom Line

In conclusion, the demand for silver is expected to increase significantly due to its growing role in industrial sectors, particularly in renewable energy, electronics, and automotive applications. Silver’s essential use in solar panels and electronic components ensures its increasing importance as the global push for clean energy intensifies and the electric vehicle market expands. Historical trends suggest potential future price surges, especially as the silver supply struggles to meet rising industrial demands. Moreover, the low interest rate environment in the final quarter 2024 further supports silver prices.

From a technical perspective, the silver market trades at the resistance level of $30. A break above this level could pave the way toward $50. The emergence of an inverted head and shoulders pattern, followed by a rounding bottom, suggests that the silver market is gearing up for a strong rally.