In our daily gold and silver trading newsletter, we usually focus on either short- or medium-term price swings, but in this essay, we’ll do something quite different. We are going to analyze the silver market from the long-term perspective and we will focus on the medium- and long-term implications.

Before moving into details, let’s discuss the main reasons for which we think the final bottom in the precious metals market is still ahead of us.

The most general and most important observation regarding the precious metals’ performance in the last several years is that they have been declining (there are voices that say that the recent run-up in silver is more than just a correction, but we’ll move to that later). Major trends tend to end in a profound manner – during tops, everyone wants to buy and when the bottom is formed everyone panics.

So far the rallies (even significant ones, when viewed from the short-term perspective) have just been corrective upswings that were followed by further disappointments. We haven’t seen a rally that would be strong enough to end the medium-term decline (even though the last move higher looks very bullish) and we haven’t seen a bottom that would be accompanied by real panic among gold and silver investors.

Still, let’s start with what happened just a week ago. The white metal rose 78 cents and the intra-week rally was even more significant. Are we seeing a major breakout in silver that will lead the rest of the precious metals market much higher? Let’s take a closer look and discuss the implications. Let’s start with a very long-term chart of silver (charts courtesy of http://stockcharts.com).

As far as the big picture is concerned, we saw a big reversal after the white metal touched its May 2015 high. This makes the reversal very believable and it is very likely that silver will slide in the coming weeks. Still, we can’t rule out another move to the mentioned resistance – the May 2015 high ($17.77).

The volume that accompanied silver’s move higher and the reversal was high, but silver’s large-volume rally seems like a bullish sign… Until one checks what happened in the previous cases when silver rallied on similarly “strong” volume. We marked these situations with vertical, black, dashed lines. As you can see, silver declined at least some in practically all cases, and in most cases, it declined significantly. Consequently, taking the above signal at face value could be very misleading. The history shows that the implications of silver’s weekly rally on big volume are actually bearish.

Moreover, some may say that silver broke above the declining, long-term resistance line and closed the week above it and they may view such a breakout as bullish. We would like to remind about the fact that silver tends to “fake out” just before moving in the opposite direction. Consequently, we are not viewing this breakout as bullish. It can even be viewed as a bearish sign.

On a short-term basis, silver tried to move much higher for the last 3 days of the previous week without success – each time silver declined back to where it had been before the session was over. A few reversals in a row suggest that the silver market really isn’t likely to move higher – the resistance is too significant.

So, the outlook is not that bullish for the medium term. However, as we’ve emphasized many times in the past, the long-term outlook for silver is very favorable and we expect the white metal to move well above its $50 high.

How high will silver go once the 2011 top is taken out? In order to determine that, we checked the relationship between the previous tops – after breaking below the previous high, silver moved to the Fibonacci extension that was based on the previous highs. Each color represents calculations for a different top based on previous tops.

So, if this tendency holds (and so far there is no reason for us to believe otherwise), we can expect silver to form the next top (not necessarily the final one) at $63, $77 and then $121. These levels are very far from where silver is today, but so was $50 when silver was trading below $10 in 2008 and it took only 3 years for silver to move to that high.

Please take a look at the declining black resistance lines. Silver broke through all of them and when it looked bullish, it simply reversed and moved to new lows. Is the recent breakout really a very bullish development? No.

Summing up, silver and silver stocks are likely to move much higher in the coming years. However, it seems likely that we will see another big decline before seeing much higher prices. Last week’s reversal in silver is a good reason to expect lower prices in the coming weeks, while – based on what followed other breakouts - the recent breakout doesn’t have bullish implications.

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Please note that the above is based on the data that was available when this essay was published (based on silver signals as well as on gold signals) and we might change our views on the market in the following weeks. In order to stay updated on our thoughts regarding the precious metals market and our free articles we suggest that you sign up to our gold & silver mailing list – it’s free and if you don’t like it, you can unsubscribe anytime.

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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