I’ll admit it. I have not been too bullish on gold and silver these past few weeks. At the end of August, I put out an article titled “Silver to $15!?“. This call was due to the major uptrend in the US dollar and the weekly zone silver was testing.
To jog your memories, silver was battling at the major $18 support. A break below would have set us up for a move down to $15. Here is the weekly chart now:
As you can see, we did not break below $18 but rather bounced above. Very strong price action as dips to $18 were bought by bulls. Support acted as support. We expected a battle between the bulls and the bears.
The weekly chart is looking bullish as we start the new week and month (October 2022). Silver is gearing up for a move back to resistance at $22, and then from there, we shall see if bulls can drive another breakout to keep the silver uptrend going.
Just my few cents: It depends on the US dollar breaking back below 108:
The US dollar uptrend remains intact, and we are currently experiencing a relief pullback. I am expecting the dollar to weaken a bit, which will provide relief upside for silver, other metals and the stock markets. And yes, cryptos.
If the dollar breaks below 108, then silver (as well as all the other assets I mentioned!) increase their probability of a longer term reversal.
Silver at time of writing is up over 8%! This is silver’s best performance since February 2021.
If you did not play support and missed this trade, how can you play this next?
I am not one to chase the FOMO, especially on an 8% day. I would be looking for a pullback since many technical signs point to a new uptrend on the daily chart.
Not only has a downtrend line been taken out, but previous resistance at $19.80 has also been taken out. Note that there seems to be some interim resistance at the $20.70-$20.80 zone. Silver is seeing some traders take their profits close to this resistance.
I have drawn out what I would like to see occur. I would like to see silver pullback and then form a higher low in this new uptrend. A pullback close to the $19.80 zone would see me as a buyer as it is a retest. What was once resistance now becomes new support. As a trader, we ride this higher low to the $22 zone.
Of course, with trading not is textbook. With the silver strength, momentum may be so strong that we see a continuation higher without a pullback. That’s fine. This happens in trading and we can either await patiently for the pullback and enter on our terms and criteria, or just look for another opportunity. Chasing FOMO rarely works out as the best option. With a move like this, I am frontrunning some profit taking which sees a pullback.
In terms of fundamentals, the price of silver was lower than the cost of production. This was going to affect supply and demand in a big way. Longer term, solar panels and the move to clean/green energy is going to be the primary driver for the white metal. More silver will be required which means more primary silver mines will need to be developed to address the demand-supply imbalances. As readers know, I am bullish on the white metal for the long term and it makes quite the significant part of my long term portfolio.