Since the top of the previous bull run in April 2011, Silver has been in a down trend and lost +70% in value. A long and painful bear market for commodities showing an inverse correlation with stock market which has been in a bull run in the meantime.
Precious metals have always been seen as a hedge and safe heaven for stormy market conditions by retail investors. The peak came in 2011 for both Gold and Silver. And players gave up commodities to catch better returns with stocks.
When looking at the chart, we can clearly notice the multiple dead cat bounces trapping retail investors and leading to the current lows.
Late 2015 – early 2016 had seen a low sub $14 rapidly bought up, pushing Silver above $21 for a short period of time and interpreted by many people as a reversal sign.
This is where a 2 years slow bleed started, while stock market was in complete fire with SPX gaining +60%.
2018: the descending triangle breakdown
Last year, we witnessed the breakdown of a crucial support around $16.28. In Classical charting it had been printing a descending triangle, which is a bearish continuation pattern.
This sudden drop occurred around June and set Silver in the $14 range. A stabilization took place for a few months until December when it started to regain some bullish momentum and get back up towards $16.
This is seen by bulls as a reversal sign and some of them point out the fact that Silver could have printed a double bottom pattern (as seen on the chart). But let’s take some time to focus on other data.
Resistance ahead, BTC fractal and demand
Are the enumerated factors above enough to consider Silver about to reverse its trend? Obviously not. And here comes the bearish case.
When comparing monthly Silver chart to BTC weekly chart, we can see a potential fractal which might play out for numerous reasons.
First of all, the bullish momentum is starting to get exhausted and Silver is sitting below the previous break down level, which makes me doubtful the time has come for a major breakout. Thus, a rejection from this resistance can be expected.
From a macro perspective, we know for a fact that Silver surplus rose to 35.3 million ounces in 2018. The physical demand also dropped by 3% compared to 2017. However, it is good to remind that the demand from industrial sources is expected to double over the next 15 years. And considering the importance of Silver in the growing electronic industry , this is a significant factor to take in account.
Overall and as a short-mid term perspective, these different metrics make me think that seeing the bullish “double bottom” scenario playing out is very unlikely.
Another interesting metric is the traded volume. It started to increase drastically in 2014 with a top occurring mid 2016 – early 2017. This happened when Silver got a +50% recovery run, propelling it from $13.9 to $21. Since then, the volume has been decreasing alongside the price.
Major part of the volume has moved towards the OTC market which is, contrary to what is seen on this chart, in constant progression.
To put this into perspective, we can rely on LBMA data which claimed having $5.2 billion in daily traded volume at the end of 2018. This represents 27,000 tonnes of Silver traded every two and a half days. That is the amount of Silver physically mined in a year.
All these data show us that this market is entirely run by institutions with most of the traded volume occurring in the OTC market.
Considering the critical situation for Silver right now and the possibility of the stock market having one last bullish leg, i don’t expect investors to jump into Silver in the coming months. This would give more room to a prolonged bear market scenario and a possible dip below $12 or even $10 and thus sub 2016 levels.
Whatever your strategy is, keep paying attention to the breakdown level ($16.28) which turned into a resistance. This market moves slowly and you will have the time to jump in when clear reversal signals get triggered.