SLVTF - SLV: Buy The Market Dip

Summary

• Half of total silver demand comes from industrial demand, which is expected to increase in the future.
• The appearance of a bullish cup and handle with multiple bull flags indicates further upside in the silver market.
• Market corrections are healthy, and a correction to $19-$20 represents an excellent opportunity for long-term investors to accumulate silver positions.
• The pivotal level of $31 represents a significant barrier, and a break above $31 would signal an explosive move to $35-$50.

iShares Silver Trust ( SLV ) is an exchange-traded fund (ETF) to provide investors with an easy and cost-effective way to gain exposure to spot silver ( XAGUSD:CUR ) prices. SLV aims to track the performance of silver, which is used as a store of value and a hedge against inflation. By investing in SLV, investors access the benefits of silver without having to physically store or manage the metal. The ETF is the best choice for investors to seek exposure to the silver market due to convenience, liquidity, diversification, and low cost. Currently, the SLV price is dropping in the short term which presents an awesome opportunity for long-term investors to accumulate positions in the silver market.

This article examines the current state of the silver market using historical data, recent price developments, and market risks. Additionally, the article expands upon its previous discussion on the silver market. The spot silver price increased by 160.65% from the March 2020 low of $11.64 to the February 2021 high of $30.34. This increment in price emerged bullish inverted head and shoulder patterns, indicating more upside potential in the silver market. Moreover, the emergence of the cup and handle patterns and bull flags indicate that the silver market is developing a strong bullish price pattern on the long-term charts. The silver market is also experiencing strong demand in 2022. The recent correction in the silver market is a good sign and represents an excellent opportunity for long-term investors.

Supply & Demand for Silver

Inflation in the United States has exceeded the 40-year record high in 2022. In order to combat high inflation, the Federal Reserve has raised interest rates above 4%, but inflation is likely to be the most important issue in 2023. Since the gold market remain very strong during 2023 due to high inflation and increased activities by central banks to increase gold reserves, silver is in higher demand than gold due to affordability, industrial demand, and monetary demand. Silver is less expensive than gold, making it more accessible to a large number of investors. When inflation is high, people seek ways to preserve their wealth, and silver is a more accessible option for investors. Silver also has a wide range of industrial uses, including in electronics, medicine, and solar panels. During high inflation, demand for goods and services tends to increase, which leads to higher demand for silver as an industrial commodity. Currently, silver is in high demand for the production of solar cells that generate green electricity . Silver demand in the electronic industry has increased as a result of the rapid expansion of PV energy in 2022.

On the other hand, silver is viewed as a hedge against monetary instability during the 2023 period of high inflation. Silver is more valuable than gold due to insufficient supply and high industrial demand, and there is a significant decrease in physical stocks held in New York and London's physical hubs. According to Metals Focus data, almost fifty percent of the massive silver demand is accounted for by industrial demand. Recent technological advancements have increased silver demand, influencing silver prices. Global silver production has actually decreased. The Silver Institute reports that the silver supply in 2022 was only 843.2 million ounces, which was close to the 2016 peak of 900 million ounces, but the demand for 2022 is much higher as compared to 2016.

The Next Buying Opportunity for Investors

Historical Analysis

The previous article discusses a long-term analysis of the silver market. This article will dive deep to explain the recent decline in the silver market for long-term investors. As the market has never closed above $30-$32 on a yearly basis, this range is regarded as a formidable trading barrier. The quarterly silver chart presents the emergence of the cup and handle formed from the quarterly lows. The cup is formed from the 1980 high of $49 to 2011 high of $49.82, when the silver price forms a rounded cup over a number of years, while the handle is currently emerging from the 2011 high. Based on the quick reversal and subsequent inverted head and shoulders pattern, it appears that the 2020 low of $11.64 was the final low. After the formation of a handle, silver buyers will theoretically return to the market. This is due to the fact that the handle provides a good entry point for buyers at a lower price, whereas the cup shape indicates that silver has found support and that the price is undervalued and has growth potential.

The price of silver is increasing dramatically over the past few weeks. The silver price pattern depicted in the chart below is extremely bullish, as the price is forming multiple bull flags, as seen by the blue dotted lines and yellow lines. The flagpole of the first bull flag is comprised of the lows of $4.01 in 2001 and the high of $49.82 in 2011, indicating that the price is consolidating within a broad range. A quarterly close above $31 will signify a bull flag breakout and initiate a quick rally to the $50 region. This rally will also complete the formation of a handle. However, any breakout above $50 will break the cup and handle pattern with significantly higher silver prices. The second bull flag is depicted in the chart below by the yellow lines. The 2020 lows of $11.64 to the 2021 high of $49.82 represent the flagpole of the second bull flag, and the price is currently consolidating in a wide range between $20 and $31 to form a bull flag. A breakout from $31 would also break the second bull flag, therefore a break above $31 could be an explosive move in the silver market. In a previous discussion, the range between $19 and $20 was regarded as a robust buying opportunity for silver investors to increase their portfolio holdings. Additionally, the RSI is also supportive at the 50-level, which adds to the potential for higher prices.

Recent Development in Silver Market

The weekly chart below further elaborates on the yellow bull flag seen in the above chart. The quick rebound in silver's price from 2020's low of $11.64 and July 2022's breakout from the neckline of an inverted head and shoulder pattern have confirmed the existence of strong bullish price patterns that are likely to serve as the foundation for the future run higher. The bull flag denoted by the blue dotted trend lines is strengthening, and the price is currently correcting back to the red trendline towards $19-$20, which represents a long-term buying opportunity based on the rounding bottom on the quarterly chart. The most recent rounding bottom on the weekly chart below, from May 2022 to November 2022 strengthens the $19-$20 strong support level.

The short-term outlook for the silver market is bullish based on the inverted head and shoulder on the daily chart. The upcoming buying opportunity for silver investors is observed in the weekly chart below. The red dotted lines between $20 and $22 indicate strong support. Silver has been extremely volatile; consequently, any market correction is always exceeded by clearing the trading stops before a quick reversal. Therefore, traders entering the market must employ wide stop-loss orders.

Risk Factors

Inflation is expected to remain high over the long term. The Federal Reserve is likely to maintain high-interest rates for an extended period. The high-interest rates increase the cost of borrowing money, reducing the silver demand as an investment and resulting in lower prices. Moreover, the cup and handle pattern is not a guarantee of future price appreciation, and there is always the possibility of risks and uncertainties in the financial market. The fears of a recession could reduce industrial demand in 2023, which could have a negative impact on silver prices. If the Fed continues to tighten monetary policy and inflation falls more quickly than expected, this will be a headwind for silver if the economy enters a recession, as a large proportion of silver demand is tied to industrial output. On the other hand, silver is just starting to recover, and it must break $31 as soon as possible from a technical standpoint. If the silver market breaks below $18, the bullish outlook will be damaged.

Conclusion

According to the above discussion, the silver market is experiencing strong demand, with the majority of demand coming from industrial output, which is expected to improve over time. Based on the cup and handle formation and bull flags, the silver market price action remains strongly bullish. The increase of 160.65% in the spot price of silver after the Covid-19 Pandemic represents a highly bullish price action and suggests further gains. The recent silver market correction is currently viewed as a buying opportunity for long-term investors. The correction to $19-$20 represents a significant support level to accumulate silver positions, whereas $31 is a strong pivot to initiate a massive rally in the market. The break above $31 will develop quickly and initially target the region of $35 to $50. Investors can invest in the silver market through SLV, due to lower fees and expenses than holding physical silver.

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