We’ve seen a strong start to Q2 for silver market, with the metal easily outperforming the S&P-500, as well as the yellow metal. This is a very bullish development given that the strongest periods for precious metals occur when silver is not only outperforming gold but also the S&P-500. In addition, we are now 12 months into a new multi-year breakout for silver, and we are working towards a very similar setup to what we saw in 2005. While history doesn’t repeat itself, it often rhymes, and this would point to silver tripling over the next six years if it were to play out similarly. However, we could have some consolidation left to fill out this pattern based on the past setup. Assuming this plays out, GoGold (GLGDF) could have significantly more upside, which is why I added to my position again recently. Let’s take a closer look below:
The chart above shows the silver price between 1980 to 2010, with the period beginning with a parabolic top in silver, a 10-year bear market, and a 12+ year consolidation period. Once silver finally broke out of this consolidation period, the metal suffered three pullbacks, with each being less violent (~35%, ~23%, and ~8%) while the metal built a 21-month base. This basing period allowed silver’s monthly moving average to play catch-up, with the final pullback landing right on this key moving average. From this breakout from the base-on-base pattern, silver soared more than 400% in less than seven years, finishing its bull market in a parabolic fashion near $50.00/oz.
Currently, we look to be building a similar setup for silver but on a shorter scale, with the metal making a parabolic top in early 2011, suffering a 4+ year bear market, and then consolidating for five years in a wide and loose range. This setup is actually more constructive than the last one, as silver made its final low right before the breakout during the COVID-19 Crash, shaking out many weak hands from the trade.
As it stands currently, we are 12 months into the base-on-base pattern, have suffered two sharp corrections (with each being less violent), and the monthly moving average (teal line) is playing catch-up. If this were to play out similarly, we would see a final pullback of less than 10% and then a breakout from this base before Q1 of next year.
Obviously, patterns are not perfect and don’t repeat themselves perfectly, and some even fail miserably. However, multi-year breakouts are generally very bullish, and the current base-on-base pattern remains quite constructive.