The Silver Rally May Be Far From Over Despite Its Recent Gains

Silver’s Outperformance

Over the last six weeks, silver futures have exploded out of the gate, rallying close to $6.00 or around 20% in that short period. Even with yesterday’s candle forming as a hangman at the highest price point silver has seen in an entire year and getting there in a parabolic fashion a price crash may not be imminent (at least technically) according to my new study.

Using Unorthodox Methods: Forecasting Silver’s Bullish Impulse Cycle

Not to brag, but my last attempt at forecasting silver prices we relatively accurate (called for a top at $24.50 when the price was sitting at $18). It was based on the assumption that silver had entered a bullish impulse cycle at the beginning of February 2022. The method I on both predictions was centered around my slightly unorthodox use of wave theory and of course my fanatic use of Fibonacci which I continued using to produce this next forecast.

It was clear that it had completed a bearish 5 count from Spring to September 2022. In that bearish impulse, count silver gave up over $10 in total value equaling a whopping 36.72% loss in 123 days. Believing that silver was oversold and after hitting a bottom at $17.40 I decided to keep a close eye on the precious metal. After hitting that low however silver would re-test support there two more times forming a quadruple bottom.

Factors Affecting Silver’s Relative Performance to Gold

It was around this time that gold hit its own triple bottom and after the last test of its own support at $1,670 began showing real strength since November 2022 and has risen steadily, currently trading up over 24% since the November lows. However, silver has tailed gold either up or down for most of modern history while leading the way in its relative volatility. This simply means that silver will tend to outperform on the way up compared to gold and on the way down it will sell off harder.

However, comparing performance over the last year, shows that gold is front-running silver up 3.92% compared to 0.88% in silver. The reason behind this was macroeconomic conditions and global tension. In February 2022 Russia invaded Ukraine and started a conflict that still continues to this day however it has much less of an effect it had on the markets at the time, in times of war gold is the preferred unit of exchange besting silver due to its relative value to its weight and size compared to silver and in times of turmoil sometimes people are forced to leave there homes with only the items they can carry and $100,000 worth of gold would be a lot more manageable than $100,000 worth of silver.

Also, in March of 2022, the Fed began hiking its Fed funds rate and gave the public a clear-cut message that there would be many more hikes ahead. Both gold and silver react to a high Fed funds rate but since silver is more utilized in industrial applications its sensitivity is magnified.

Back to the present day and the same factors that gave gold a leg up on silver are fading. The Ukrainian conflict still rages on but is not at the forefront of media coverage in places far from the actual skirmish i.e., America. The Fed has given signals that the next FOMC meeting may bring about another small rate hike but that there would almost certainly be a pause following it. Yesterday’s CPI report for March revealed yet another decline in headline inflation strengthening the chance of a pause by the Federal Reserve.

For these reasons, silver is likely to continue to outperform gold in the coming months. Back to my current wave count that correctly predicted silver’s top at around $24.50 by means of a 1.618% extension of wave 1, which is one of the most common ratios in impulse cycles. Using the same blueprint wave 5 (which we are in currently) will most likely be a 1 to 1 extension of wave 3 which means that silver is likely to continue higher at least until $26.79.

The recent breakthrough the 78% extension of wave 3 yesterday backs up this assumption.