Silver Price Prediction for June 2021
The below silver price forecast article is based on one of thethat we sent to our paid subscribers. Enjoy:
While silver’s recent outperformance may seem appetizing, the white metal is known to overpromise and underdeliver. Case in point: after recording several false breakouts, every prior display of strength ended with extreme disappointment. And while bearish medium-term implications should take precedence over short-term spurts, the white metal is once again seducing investors like it did in late 2019/early 2020.
If you analyze the right side of the chart below, you can see that silver reversed on huge daily volume. And while the white metal outperformed gold on a very-short-term basis, silver followed that up by declining back below its early-January highs. For context, this was silver’s fourth failed attempt to recapture and hold this key level. On top of that, the white metal also lost its rising support line last week (the upward sloping line on the far right side of the chart), and once again, silver is another example of the most volatile PMs eliciting the most bearish signals.
Please see below:
For more context, I wrote previously:
If you analyze the left side of the chart above, you can see that silver moved back and forth before breaking toward its September highs. However, after failing to complete the milestone, the white metal eventually collapsed. As a result, with the pattern on the right side of the chart eerily similar, investors’ optimism has occurred at what’s likely the worst possible time.
To that point, with its current behavior also mirroring 2008 – where silver fell below and then rallied back above its 50-day MA before plunging – the white metal remains on a journey of self-destruction.
If we zoom in on the white metal’s price action in 2008, you can see that an immaterial bounce also occurred right before silver fell off a cliff.
The final corrective upswing of early 2020 took place in very late February and early March, while the two – normal – tops that created the red-line rectangle formed more or less at the turn of the year and in late February. This year, it’s all taking place at almost exactly the same time of the year.
Let’s be realistic - so far, the analogy (to what happened in 2019 and 2020) might seem too unclear to be viewed as a reliable base for making a silver forecast.
But what if… What if there was a very similar pattern in the past that also preceded a massive decline? This would greatly increase the reliability of the above self-similarity.
There was indeed such a pattern!
That’s what silver did in 2008 before it declined.
The August 2007 – March 2008 rally (please note the interim top in November 2007 that was followed by a zigzag decline, more or less in the middle of the rally) is similar to the March 2020 – August 2021 rally (please note the interim top in June 2020 that was followed by a zigzag pattern, more or less in the middle of the rally).
Afterwards, we saw a double top in both cases that was followed by a sizable slide. Then silver formed a specific U-shaped broad top, where the final top was below the initial one (exception: in this case the forum-based rally took silver slightly above the previous high, but due to the specific / random nature of the move, it “doesn’t count” as something that invalidates the analogy).
After the top, silver declined, and the final corrective upswing took place approximately between the 50- and 200-day moving averages.
Please note that in both previous (2008 and 2020) cases silver then truly plunged, and it kept on declining until it moved below the 2.618 Fibonacci extension based on the initial downswing. The above charts illustrate that by showing the first decline at the 38.2% retracement (1 / 0.382 = approximately 2.618). Applying the same to the current situation (the initial decline took silver from below $30 to below $24) provides us with the minimum decline target at about $13.50. Will silver really decline as low? In my view, it’s imperative to watch other markets for indications as they might have more reliable targets (for instance gold), but I wouldn’t say that this target (or lower price levels) is out of the question. Of course, that’s just on a temporary basis – silver will likely soar in the following months and years (after this decline).
Highlighting the effect of WallStreetBets’ #SilverSqueeze, the SLV ETF’s volume spikes in 2020/2021 were nearly identical to the surges that we witnessed ~10 years ago. If you analyze the chart below, you can see that the massive inflows at the end of 2012 were not the beginning of a medium-term upswing. In fact, they coincided with silver’s final bounce before the white metal suffered a major decline.
Please see below:
If you analyze the volume spikes at the bottom of the chart, 2021 and 2011 are a splitting image. To explain, in 2011, an initial abnormal spike in volume was followed by a second parabolic surge. However, not long after, silver’s bear market began.
SLV-volume-wise, there's only one similar situation from the past - the 2011 top. This is a very bearish analogy as higher prices of the white metal were not seen since that time, but the analogy gets even more bearish. The reason is the "initial warning" volume spike in this ETF. It took place a few months before SLV formed its final top, and we saw the same thing also a few months ago, when silver formed its initial 2020 top.
The history may not repeat itself to the letter, but it tends to be quite similar. And the more two situations are alike, the more likely it is for the follow-up action to be similar as well. And in this case, the implications for the silver price forecast are clearly bearish.
Based on the above chart, it seems that silver is likely to move well above its 2011 highs, but it’s unlikely to do it without another sizable downswing first.
Similarly, silver’s inverse price action also has bearish implications. Nearly identical to the inverted formation that emerged from 2006 to 2009, today’s chart looks eerily similar to its predecessor.
While it’s more of a wild card, the above pattern shows that silver’s 2020 top plots are nearly identical to the inverse of the 2006-2009 performance. I copied the 2006 – 2009 performance right below the regular price movement and inverted it. I also copied this inverted pattern to the last few years.
The similarity is quite significant. And whenever a given pattern has been repeated, the odds are that it could also repeat in the not-too-distant future. Of course, there is no guarantee for that, but once the same market has reacted in a certain way to a specific greed/fear combination, it can just as well do it again. And these similarity-based techniques work quite often. So, while it’s not strong enough to be viewed as a price-path-discovery technique on its own, it should make one consider some scenarios more closely. In particular, this means that the declines in the prices of silver, gold, and mining stocks could be bigger and take longer than it seems based on other charts and techniques.
The above is also in tune with the implications of the sell signal from the MACD indicator on the monthly gold chart.
The only thing that comes to my mind which could – realistically – trigger such a prolonged decline would be a major drop in the general stock market. Given what I wrote above, the latter is quite possible, so I’ll be on the lookout for confirmations and invalidations of this scenario.
If history rhymes, silver could be in for a profound decline over the next few months (beyond my initial target). Moreover, the development would increase the duration of the precious metals’ bear market (also beyond my initial forecast).
After all, gold did invalidate its long-term breakout above the 2011 highs, and the way gold reacted to a small upswing in the USD Index was truly profound…
Turning to cross-asset correlations, gold, silver and the HUI Index’s 30-day correlations remain stable. With the PMs exhibiting negative relationships with the U.S. dollar, their short-term behavior is similar to what we should expect over the medium term. More importantly, though, with the USD Index beginning to resemble a caged animal, once the greenback is released back into the wild, the PMs are likely to be its first meal.
For more context, I wrote previously:
Since gold, silver, and mining stocks have been strongly negatively correlated with the USD Index in the medium term, it seems likely that they will be negatively affected by the upcoming sizable USDX upswing.
…Until we see the day where gold reverses or soars despite the U.S. currency’s rally.
If that happens with gold at about $1,350 - $1,500, we’ll have a very good chance that this was the final bottom. If it doesn’t happen at that time, or gold continues to slide despite USD’s pause or decline, we’ll know that gold has further to fall.
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