Silver (XAGUSD) remains consolidated after making a one leg down move with the price breaking below $24.50 and then retesting this breakdown zone. This move lower was not a surprise to our readers given my analysis on gold. Silver tends to follow gold rather than copper even though most consider silver a more industrial metal than a monetary metal.
For those who trade the precious metals, gold recently broke below the major support zone at the $1940 zone. As long as gold remains below this level, more legs down can occur. This also means that silver can fall. Gold requires a close back above $1940 to nullify this weakness and get back in the uptrend. Silver traders/investors should watch for this in order to increase the probability of a silver reversal.
Now let’s take a look at everyone’s favorite white metal.
Let’s start with the weekly chart.
Silver has closed back below the breakout trendline which I have pointed to with the blue arrow. When silver broke above this trendline back in late March early April 2023, it really got silver bulls excited. However, the $26 zone proved to be resistance with silver failing to close above $26 after testing it for 5 weeks.
Then, silver broke below support at the $24.50 zone and then rejected this zone on the retest. The one leg lower (so far!) has now seen silver CLOSE below this weekly breakout trendline thereby nullifying this technical breakout. As you can see from the current weekly candle, silver is now retesting this trendline which could provide resistance.
But how about some good news?
If we go down to the daily chart, we can see that technically, silver REMAINS IN AN UPTREND. I say this because the price of silver remains above the uptrend line pointed out with my blue arrow. We have multiple higher lows connected with this trendline. More than 3, which is our key number of touches to validate an uptrend line.
But this does mean that silver could see one more leg down in order for us to retest this uptrend line. Therefore, we remain bullish on silver as long as price remains above the $21.50 zone.
Now, I want you to shift your attention to the moving average, also colored in blue. Guess what simple day moving average silver is testing right now? The popular 200 day moving average. This moving average is closely followed by traders, funds and the financial media. From investopedia:
The 200-day simple moving average (SMA) is considered a key indicator by traders and market analysts for determining overall long-term market trends. The indicator appears as a line on a chart and meanders higher and lower along with the longer-term price moves in the stock, commodity, or whatever instrument that is being charted.
The 200-day SMA seems, at times, to serve as an uncanny support level when the price is above the moving average or a resistance level when the price is below it.
Support is the key word. Silver is testing this average right now, and we are seeing a consolidation here. Buyers are stepping in here which could mean the end of this corrective move down in a longer uptrend.
So in summary: silver is in a long uptrend as long as we remain above the uptrend line. However, what remains to be seen is if this ‘corrective’ period is over. Silver is consolidating above the 200 day moving average and a major downtrend line to the upside. Two highly significant technical indicators which adds to the importance of this recent consolidation.
For bulls, a break and close above $23.10 means silver is resuming the long term uptrend. If we break and close below $22.25, then the corrective period is not over, and silver would be due to retest the uptrend line around the $21.50 zone.
The price action here on the US dollar is also worth watching. A move higher would mean more weakness for gold and silver.
How about the fundamentals?
Those who see silver as an industrial metal will not be surprised if silver falls. If a recession is coming because the Fed cannot achieve a ‘soft landing’ anymore, then silver would drop. You are seeing perhaps the markets price in a slowdown given the recent price action on copper and oil.
In terms of market moving data, we do get the FOMC minutes on Wednesday, and then US employment data (NFP) on Friday. Both are high risk events which can move the US dollar and therefore the precious metals and other commodities.
Longer term demand for silver remains tied to solar panel technology. With the world shifting to renewable energy, more silver will be required which will exacerbate the supply deficit. More efficient cell designs for solar panels require more silver. Silver consumption is expected to rise, with solar making up around 14% of overall demand this year, compared to just 5% in 2014.
The shift towards more efficient solar panel technologies that require higher amounts of silver will further strain the supply. A surge in demand with limited supply means higher prices using basic economics.