Silver – Just before the next turning point

Parallel to the overdue correction in the U.S. dollar and a strong recovery in the equity markets, precious metals rose significantly over the last five weeks. Starting from a triple bottom around 1,615 USD, gold gained almost 12% to 1,810 USD. Silver, on the other hand, showed relative strength already from the beginning of September and gradually posted a series of higher lows. Overall, since the low on September 1st at 17.55 USD, an impressive recovery of almost 34% to 23.51 USD is on the books.

Our optimistic expectations of the last two months have thus been fully confirmed and the price targets mentioned have been reached. Shortly before the next FOMC interest rate decision next Wednesday, however, all markets have now run quite far and provide a deceptive sign of relaxation.

The Fed will most likely raise rates again by 50 basis points on December 14th, while the balance sheet totals in both the U.S. and the eurozone continue to shrink, hence draining liquidity from the markets. At the same time, consumer sentiment is in the basement. Increasing mass layoffs will weigh heavily on the real economy in the coming months and further undermine confidence. The rally sparked by the correction in the U.S. dollar and short covering therefore seems exaggerated. Markets may already be on the verge of another turning point. Of course, a year-end rally could extend into the first week of January, especially since sentiment is still strongly pessimistic and most market participants have missed the recovery of recent weeks.

In the bigger picture, however, there can not be a “sustained all-clear”. Instead, the bear market in all financial market sectors is probably not over yet. Rather, the most blatant consequences of the restrictive monetary policy are likely to become visible only in the next two quarters. It is therefore generally advisable to stick to the “risk-off” stance. However, larger pullbacks in precious metals are buying opportunities, because the Fed will sooner or later be forced by a foreseeable turmoil to return to the policy of easy money.

Silver in US Dollars

Daily Chart – Upside potential almost exhausted in the short term

Silver in US-Dollar, daily chart as of December 8th, 2022. ©Midas Touch Consulting. December 9th, 2022, Silver - Just before the next turning point

Silver in US-Dollar, daily chart as of December 8th, 2022. ©Midas Touch Consulting

After several weeks of “dancing and fighting” around the 200-day moving average (21.27 USD), silver bulls finally prevailed on November 30th. Prices quickly rose to 23.51 USD within four trading days. So far, this high is intact. However, the ideal target in the form of the downtrend line, roughly speaking in the area around 24 USD, has been missed so far. After a short pullback, the next attack seems to have started. Whether the silver bulls will still have enough strength for a rally towards this resistance zone shortly before the Fed rate decision, however, will have to be seen in the next four trading days.

In any case, after this strong recovery rally in the silver market, a cautious and wait-and-see attitude is recommended for now. The stochastic on the weekly chart (not shown) is clearly overbought, while on the daily chart it would allow another run-up to higher prices in the short term. However, the upper Bollinger Band (23.12 USD) is already standing in the way of the bulls on the daily chart shortly. In particular, however, the 200-day moving average (21.27 USD) is still falling. With such a setup, this much respected moving average line is usually not suitable as a sustainable springboard in the direction of higher prices.

Overall, the precious metals have worked off their conservative recovery targets and the U.S. dollar reached its correction target (1.05 euros). The probability of a major turning point is therefore significantly increased from now on. In the best case, precious metals (silver in September and gold in November) have seen their lows and are already on the way to the highs of March 2022. Alternatively, the liquidity crisis that is flaring up again in the 1st half of 2023 will ensure one more lower low (for gold approx. 1,550 to 1,600 USD, for silver approx. 16.00 to 17.50 USD). Which of the two scenarios will take effect should be clarified by the depth of the next and soon to start pullback in the precious metals.

In particular, the of 1,680 USD level in the gold market holds a key function. If this support can be defended sustainably, the continuation of the recovery towards 2,000 USD would be imminent. For the silver price, this would probably mean a reunion with the decisive resistance zone between 28 and 30 USD. In the bullish case, both targets would even be conceivable until spring 2023.

If, on the other hand, the support at 1,680 USD would clearly be undercut again, we have to assume that precious metal prices will hit a new low.

Silver in Euros: Buy limit remains at 20.00 EUR

Our last-mentioned buy limit of 20.00 EUR was unfortunately very slightly missed. The low came in at 20.11 EUR two and a half weeks ago. In view of the good chances for an imminent pullback, there is currently no reason to increase this limit.

Analysis initially published on December, 9th, 2022, by Translated into English and partially updated on December, 9th, 2022.

Feel free to join us in our free Telegram channel for daily real time data and a great community. If you like to get regular updates on our gold model, precious metals and cryptocurrencies, you can also subscribe to our free newsletter.

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.