This is one of those weeks where us Silver bulls will be quietly mouthing a prayer to the trading Gods. A very big week for Silver. A huge technical level is being tested and could provide us with a springboard higher. I will take a look at the US Dollar before we look at Silver, but I must say, I am optimistic that Silver holds.
What I will be watching is the US Dollar. But before we do, a quick word on bonds and the 10 year yield.
If you visit CNBC or any other financial media website, the top headline you will see for today is the move in the 10 year yield. They have begun the week at 1.5%, a level not seen since July of this year.
We are approaching a major resistance zone of 1.55% so let’s keep eyes on this. If that breaks, we hit 1.75% on the 10 year yield. So why is this chart important? Well higher yields means that bonds are selling off. The market is taking this as a sign that the Fed will be tapering (slowdown their bond purchases) in the near future.
This takes us to developments in the US Dollar.
The Dollar had a rally last week. But now we are at a resistance area at 93.50. We did see a sell off here last week, but the dips were bought. We test this resistance again today, and judging by today’s daily candle so far, the sellers may pile in. The only issue though is that if the market believes the Fed will taper then we should expect to see the US Dollar rise. Gold and Silver bulls be aware of this fact. The Fed spoke about employment being the final piece to the tapering puzzle. A lot of eyes will be on next weeks US NFP data on Friday. The Dollar will move big then.
We have seen massive moves in commodities recently due to supply chain issues. I like to think that in these wild markets, where everything is expensive, and yes you can make a case that crypto’s are still cheap, but for larger institutions, commodities look attractive at these levels.
Marin Katusa posted up this graph displaying that commodities are still cheap compared to stocks:
Not saying this is the bottom, I mean we could still drift lower, but for long term investors, this provides some comfort. Asset prices move in waves or cycles. Nothing moves down or up forever (maybe Vancouver Real Estate?), so there will be a reversal at some point down the road. You just have to make a macro case for it.
Now onto the main event (insert Bruce Buffer voice here). Silver.
Above is the weekly chart. I want to start here before zooming in just to give you all an idea on where we are. Yes, a big flip zone. This $22.00 dollar has been both support and resistance in the past. This is a major support test and note price action back in November and December of 2020. We bounced and gained 30% from this level. Silver bulls hope the past repeats itself.
Above is the daily chart. This is where I want to start entering contracts to front run a move higher. Although I would only enter a small position just for now. The 4 hour analysis will explain why.
But on the daily, not the large candle wicks I have pointed out with the handy dandy arrow tool. Signs that buyers have defended this $22.00 zone in the past.
We tested this zone last week, and we did see buyers defend. Things are looking good. I do like the fast we ranged here all last week. Could a base be developing? Yes there is:
Going down to the 4 hour we have a range between $22.00 and $23.15. As I mentioned earlier, one can enter a position on Silver here. I advise a small one and then enter the full allocation on the break above $23.15. That would confirm a new uptrend and then we ride. Some good signs with the large wicks and something shaping up to be a double bottom.
So the game plan? Enter a small position now placing stop losses below $22.00, and then add (or enter if you don’t want to risk a small entry right now) on the breakout above $23.15. Remember, we want to see a confirmed close above $23.15 for the trigger.
Currently Silver price remains in a range, but we shall watch the developments on the 10 year yield. If this is indeed the market pricing in a tapering, then the US Dollar can get a bid which wouldn’t bode well for Silver and Gold.