It has been quite some time since I have spoken about the chart of silver. Especially silver in relation to the major support zone that I will be talking about today. It is make of break time for the white metal.
Silver’s big brother, gold, broke below a monthly range when it took out $1920. Prices did pullback to retest it, but as expected of typical breakdown and retest price action, sellers piled in and gold is looking to test major support between $1840-$1850.
The precious metals have been hit by a hawkish Federal Reserve and the rising US Dollar. It should be remembered that gold and silver do not yield anything, hence why they do well in an environment of low interest rates.
The 10 year yield is now above 3% with a resistance zone at 3.23% quickly approaching. If we break above 3.23%, it could spell trouble for metals in the short-medium term. But if we reject from here, then it could aid the metals as they also test their support zones.
I know when looking at the rates, it does not look too good for the metals. However keep in mind this is the nominal rate. In real terms, factoring inflation at 8.5% (or anything above 3% really) one is still losing money in bonds.
The US Dollar is important to watch for multiple reasons, but especially if you are a precious metals investor. Gold and silver do have a high negative correlation with DXY. So if DXY moves up, gold and silver move down and vice versa. Now this isn’t always the case. In times of a confidence crisis, both gold and DXY can move together.
The US Dollar has been very strong lately. Many believe Brent Johnson’s Dollar milkshake theory leading to a stronger Dollar is playing out. What complicates things is addressing why the Dollar is rising. The consensus is because of the Federal Reserve and the Dollar pricing in multiple rate hikes. But I look around the world and see falling stock markets, currency issues in Asia, problems in Europe, and war in Ukraine. I wouldn’t be surprised if money from around the world is running into the Dollar for safety. Being the reserve currency, the US Dollar is a safe haven.
Saying all this, I remain positive on both gold and silver for the long term. Bank of America as well, and sees pullbacks as buying opportunities.
My bullish sentiment comes from the fact that the monetary inflation problem still needs to be dealt with. Most of us are holding gold and silver as a way to bet against the debt, and protect our purchasing power as fiats weaken. Take Japan for example.
I have been warning and updating readers on the situation in Japan and the incredible demise of the Japanese Yen. Where has Japanese money run to? I am sure the Japanese are running into the US Dollar as the USDJPY has hit levels not seen since 2002, but we are seeing Japanese money running into gold and silver. XAUJPY actually printed new all time record highs starting in late February.
For more info on this, I highly recommend you read my article on the price of gold in Japan. If a fiat currency near you does the same, then metals is where you want to be. Not many people watch the forex/currency markets, but as someone who trades them daily, they are very volatile.
Now let’s get to the silver chart.
Let’s start with the weekly chart. Silver is down 2% to kickstart the week. Not the best way to begin the week. Since this is the weekly chart, the key will be how this current candle closes by the end of the trading week on Friday.
Note the support zone that I have drawn. $21.50 is a massive major support level that has held for two years. In the past 2 years, silver has bounced 5 times from this support zone. Regular readers will be familiar with this support level as I have discussed tests and bounces from this level before.
Buying this support seems like a prudent idea. I am sure many traders are opening long positions here. I just want to see signs of buying first. Ideally, by the end of the week, the weekly candle close has some sort of large wick indicating that buyers did defend.
If one wants to enter before the weekly close confirmation, then I would take it down to the daily chart. Note how in the past, silver price began to range at this support before reversing. We had multiple days of price holding above. This is what I want to see going forward. I cannot just act with the candle we have right now.
In summary, the silver price is testing a huge and important support zone. I will be watching both the daily and the weekly chart for technical signs of buying. The opposite can happen. The silver price can breakdown below $21.50. Let’s hope that isn’t the case, but if so, it does point to higher yields and a higher US Dollar.