TAKEAWAYS
- Several analysts have grown exceedingly bullish on silver which has been undervalued for some time
- Price targets are now at the range of $35 to $50 an ounce
- The technical outlook presents a mixed picture, but there are a few key levels to watch if you're bullish on silver
The likelihood of silver reaching $50 an ounce this year is a ‘real possibility,' according to analysts. More conservative yet bullish forecasts plot silver's target range between $35 and $50.
What's driving the bullish outlook?
- The global silver supply is expected to climb amid a fourth straight annual deficit in global supplies.
- The surge in silver demand reflects both monetary and industrial interests.
- And finally, the current gold-to-silver ratio is on the high side (between 85 and 90), suggesting that silver is undervalued.
A Macro Look at Silver's History and Current Price Targets
CHART 1. MONTHLY CHART OF SILVER FUTURES ($SILVER). Note the vast expanse of the current analyst price target range. Chart source: StockCharts.com. For educational purposes.
If you look at the monthly 15-year chart of silver, you'll note that the "poor man's gold" hasn't reached anywhere near $50 an ounce since it spiked in 2010. While several analysts set price targets starting at $35, note that silver has significant resistance at $30 (see dotted blue line), stemming from 2020 and 2021 highs.
Another thing to note is that silver tends to see a relatively significant surge in almost every instance of the Chaikin Money Flow (CMF) indicator rising above the zero line (except for 2017). Currently, the CMF is giving this signal. Can this be the beginning of another significant rise in prices?
Now that we can see the macro picture, let's look at the near term context.
CHART 2. DAILY CHART OF SILVER FUTURES. After a protracted period of range-bound trading, silver has finally broken free. Will this breakout falter like previous attempts, or will it lead to a price surge that fulfills analyst expectations? Chart source: StockCharts.com. For educational purposes.
Looking at a six-month daily chart, silver has begun outperforming the Invesco DB Commodity Index (DBC), a broad index of commodities. Silver's performance against gold is rising yet still undervalued compared to the yellow metal. These are generally bullish indications.
However, watch out for the divergence in momentum between silver's price and the Money Flow Index (MFI), a volume-weighted Relative Strength Index of sorts (see descending blue line on MFI indicator).
The last candle is also a spinning top (close lower than the open) which has 51% odds of reversing (according to technical analyst Thomas Bulkowski's performance studies).
Assuming your forecasts align with analysts who anticipate a surge in silver prices, reaching $35 or even $50 per ounce, what should you expect if silver experiences a downward reversal?
See the two black lines on the chart marking the two most recent swing lows. If the price falls below these two lines, both of which should provide support if the overall market sentiment is bullish, you can assume that silver will fall back into the trading range cycle.
What to Watch Out For
For silver bulls, it all boils down to this: Is the current breakout going to propel silver to new heights or is it going to fall back within the trading range?
The longer-term momentum (via CMF but on a monthly scale) presents a bullish scenario, but one that might take days or weeks to play out. The shorter-term picture indicates that silver is likely to pull back. The main thing to watch is whether silver bounces or falls below the most current swing low points. If the bulls have the near-term advantage, you can expect a bounce; if not, price will likely fall back into the trading range cycle.
The Bottom Line
Analysts and industry experts highlight that the growing interest in silver, coupled with supply constraints and its pivotal role in green technologies, positions it as a metal to watch closely in the coming months. However, the technical outlook presents a complex scenario that requires careful consideration of mixed and conflicting factors. If the more fundamentally aligned analysts are correct, signs of the anticipated bullish outcome should become apparent on a technical basis.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
