Silver – Short-term recovery, but no final low yet
After an impressive six-month recovery rally, precious metal prices reached a significant high on May 3rd. While the spot gold narrowly missed its all-time high of USD 2,075, settling at USD 2,067, silver failed to surpass the USD 26.12 mark. As a result, a small double top pattern has formed in the silver market, alongside the April high at USD 26.06. Silver – Short-term recovery, but no final low yet
As expected, both gold and silver prices have entered a correction phase over the past three weeks. Consequently, silver has already dropped by 13.3% from its recent peak, while gold has retreated approximately 6.3% from its recent highs, reaching a low on Friday night at USD 1,936.
In the broader picture, this correction is healthy and provides an important breather. From a fundamental perspective, the pullback may not necessarily make sense given the escalating dispute over the US debt ceiling and the lingering US banking crisis.
Technical analysis clearly anticipated the correction
However, from a technical analysis standpoint, the correction was clearly anticipated. Increasingly negative divergences among various indicators, the unfavorable seasonal pattern between May and July, as well as the slightly over-optimistic sentiment, were all clear warning signals. Ideally, the ongoing correction will lead to a complete cleansing of the “perma-bull” camp in the coming weeks. This would allow gold prices to approach new all-time highs above USD 2,075 with renewed strength in the third or forth quarter. Similarly, silver is expected to regain momentum and potentially reach the strong resistance zone around USD 30 by the end of the year.
In the short term, it appears that an interim low was reached during the Asian trading session Friday night, suggesting that a countertrend bounce or recovery could unfold in the next few days or maybe one to three weeks. However, the final low of the correction is most likely yet to be seen.
Silver in US-Dollar – Correction target between USD 21.50 and USD 22.85
On the weekly chart, silver managed to break above the downtrend line of the past two years in early April. However, the bulls’ strength only resulted in modest gains on the upside. Initially, the rally came to a halt at USD 26.06, and silver prices consolidated sideways between USD 24.50 and USD 26 for about four weeks. Finally, on May 3rd, a slightly higher high was reached at USD 26.12.
Double top at slightly above USD 26
Encouraged by this small double top above USD 26, the bears took control and mercilessly pushed silver prices lower over the past three weeks. So far, the descent ended at USD 22.67 during the night from Thursday to Friday. Just before the weekend, silver prices attempted some damage control and managed to stabilize above USD 23 with a weekly close at USD 23,33.
However, there is no doubt that the technical picture has been damaged due to the three consecutive red weekly candles and the fall below the former downtrend line. The sell signal on the weekly stochastic indicator also suggests that the correction will need much more time.
At least, the sharp price decline has completely cleared the daily chart. The daily stochastic indicator is strongly oversold, significantly increasing the chances of a short-term countermove. However, bulls need to end the bearish embedded status of the oscillator first. In the best-case scenario, a temporary revisit of the the 50-day moving average (at USD 24.36) would then be conceivable. The slightly rising 200-day moving average (USD 21.97) has not yet been reached during the pullback and could be targeted after the completion of a countermove, possibly starting in mid or late June.
Expect a revisit of the 200-moving average before mid-summer
Overall, the zone between USD 21.50 and USD 22.85 seems to be the target area for the correction and would likely provide an excellent buying opportunity, probably somewhere in July. Only if the precious metals, contrary to expectations, manage to launch a renewed attack on the previous highs (gold around USD 2,050 and silver around USD 26), would the correction scenario be dismissed.
Otherwise, the weak seasonal component will prevail and should lead the precious metals sector to the typical summer low. From there, a new leg up should be able to start, probably between mid-July and mid-August, which should also bring about a breakout to new all-time highs in the gold price.
Silver in Euro – Buy limit remains at EUR 21.00
On a euro basis, the silver price has taken a significant hit in recent weeks, too. With a low of EUR 21.15, it narrowly missed both the 200-day moving average (EUR 20.96) and our buying limit at EUR 21.00 in the night from Thursday to Friday. We remain patient and suspect that the correction will be prolonged, and the final low has not been reached yet. Therefore, the buying limit at EUR 21.00 remains in place.
Conclusion: Silver – Short-term recovery, but no final low yet
As expected, precious metal prices have come under increasing pressure in recent weeks and have likely entered a multi-month correction phase. This does not change the overall uptrend, but the sector may become somewhat more challenging in the next two to three months.
For gold, our target zone sits between USD 1,900 and USD 1,920, while silver could pull back to the range of USD 21.50 to USD 22.85. Depending on the intensity and duration of the correction, these target zones may need to be adjusted. In any case, it is advisable to continue patiently waiting for the typical summer low in the precious metals market.
Analysis initially published on May 26th, 2023, by www.gold.de. Translated into English and partially updated on May 27th, 2023.
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