Silver – Consolidation at elevated levels.
While more and more U.S. banks are reeled from a crisis in confidence, the 2nd largest bank failure ever has already taken place just this weekend. In fact, the 10 USD billion financing by JPMorgan Chase to First Republic Bank means the US regulators decided to nationalise the banking system! At the same time, markets are challenged by the highest Fed funds rate since 2007 while the VIX volatility index shows the lowest reading since November 2021. Silver – Consolidation at elevated levels.
Silver is up nearly 50% in just eight months!
Starting from its last major low at 17.56 USD on September 1st, 2022, the price of silver increased by an impressive 48.5% in just under eight months. Within this uptrend, the sharp correction in February provided an intermediate pullback, allowing new buyers to provide fresh momentum to the silver market from the beginning of March. With prices slightly above 26 USD, silver reached its highest level in over a year on April 14th. Since then, prices, along with the price of gold, have retraced somewhat over the past two weeks.
So far, this price movement can be classified as a consolidation at a high level, without the bullish tone being lost. On the contrary, the consolidation thus far seems to suggest that precious metal prices could see another upward surge in the near future.
Silver’s seasonal pattern remains unfavorable until mid-summer
However, given the seasonally unfavorable phase until mid-summer and increasing negative divergences, the upside potential in the coming weeks or three months is expected to be rather limited. A likely scenario for gold would be a topping process around 2,050 USD, while silver could still rise to around 27 to 28 USD.
Afterwards, ideally, there should be slightly larger and corrective pullback before the peak or late summer, as from a technical perspective, the overbought precious metal prices would otherwise struggle in the second half of the year.
Silver in US-Dollar – Daily stochastic slightly oversold the major downtrend line
As expected four weeks ago, silver prices continued to rise during April. The high of 26.07 USD was almost exactly in the middle of the two mentioned target prices of 25 USD and 27 USD. The subsequent consolidation has resulted in a pullback of 1.59 USD or 6.1% over the past two weeks. The support zone between 24.00 and 24.50 USD was only briefly tested. At the same time, the overbought condition in the daily Stochastic has been completely unwound, and the oscillator has almost reached its oversold zone.
With this setup, significantly lower prices currently have a lower probability. Moreover, pullbacks are likely to be supported by the rapidly rising lower Bollinger Band (24.65) on the daily chart. Additionally, the rising 50-day moving average (23.19) will approach current price levels within the next two weeks.
Overall, the silver market is likely on the way to meet its major resistance zone around 30 USD again. In the short term, the successful breakout from the large triangle should give some more momentum. However, to reach the resistance zone around 30 USD, silver would still need to rally by about 20%. Given the overbought situation on the weekly chart, attempting such a feat would leave the silver bulls even more exhausted upon reaching this next resistance zone. Hence, realistically speaking, the silver bulls will probably have to be patient for a while longer until this major resistance zone can finally be sustainably overcome!
Compared to gold, silver has enormous potential to catch-up
Long-term, compared to the gold price, silver undoubtedly has enormous catching-up potential. While gold is clearly trading above its high point from the summer of 2011 (1,920 USD), silver is trading significantly below its high point from back then (May 2011 = 50 USD). Therefore, any larger pullback in the silver market is another buying opportunity.
Silver in Euro – New buying opportunities only below 21 EUR
Due to the weaker US-Dollar and the stronger euro, the performance of precious metal prices in euro terms is not quite as spectacular. Nevertheless, prices for one ounce of silver have increased by around 34% in the last eight months.
Currently, we only see a somewhat interesting entry opportunity at prices below 21.00 EUR. However, for those who still do not have sufficient physical precious metals (recommended are physical holdings of at least 5%, but better 10-15% of total assets), they should go shopping immediately.
Conclusion: Silver – Consolidation at elevated levels.
After many months of rallying, gold and silver prices are currently consolidating one to two levels below their recent highs. After this multi-months long uptrend, momentum is increasingly waning. This is not a cause for concern in the medium and long term. However, in the coming weeks and until early or mid-summer, an interim high should be expected (if it has not already been seen). Therefore, it is advisable to act patiently and wait. Most likely, there will be a good buying opportunity again by late summer.
Analysis initially published on April 29th, 2023, by www.gold.de. Translated into English and partially updated on May 2nd, 2023.
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Disclosure: This article and the content are for informational purposes only and do not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. The views, thoughts, and opinions expressed here are the author’s alone. They do not necessarily reflect or represent the views and opinions of Midas Touch Consulting.