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Gold surged to a fresh high this week, while silver also closed positively despite the US dollar strength.
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Factors like inflation concerns and anticipated Fed rate cuts are bolstering precious metals, with silver potentially poised for a breakout.
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Silver's consolidation near key support levels suggests it could initiate a significant upward move if it maintains stability around $24.50.
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Gold closed at a fresh unchartered territory on Friday after rising more than 3% on the week, leading to a jump to a new record at the Asian open overnight.
Silver also managed to post a positive close on the week, even as the US dollar eked out a third weekly gain against a basket of foreign currencies.
Precious metals have been in strong demand in March, particularly gold, which has made record highs a few times recently.
The yellow metal gained some $190 last month, while silver added just $2.29. But in percentage terms at least, silver hasn’t done too badly with a gain of just over 10% compared to just over 9% for gold.
Still, silver remains miles away from its record highs and on that basis, heavily undervalued compared to gold. So, can silver play catch up and start heading higher more aggressively moving forward?
Why have precious metals been rallying?
Essentially because of years of high inflation chipping away at the value of fiat currencies, which is the same reason why Bitcoin has also been hitting record levels.
Investors are also expecting the Fed to cut interest rates in June and potentially a few more times before the year is out, with several other major central banks like the ECB and BoE expected to follow a similar path.
Rate futures have priced in a near 70% probability of a quarter-point rate cut from the Fed by June, according to the CME Fedwatch Tool.
The odds of a cut increased after Fed Chairman Jerome Powell said on Friday that the recent US inflation data was "along the lines of what we would like to see.”
On Friday, we also had in-line core PCE inflation data. It rose 0.4% month-over-month and 2.5% y/y in February. Core PCE climbed 0.3% m/m and 2.8% y/y, matching market expectations.
What’s more, there is optimism about a recovery in Chinese demand, with data from the world’s second-largest economy showing improvement lately, and that trend continued with the latest PMI data over the weekend.
A stronger Chinese economy means a stronger demand for precious metals, all else being equal.
Another factor supporting gold has been momentum – traders like buying things that go up. But with gold now looking a little expensive, silver, at least in nominal terms, remains quite undervalued relative to the yellow metal.
Silver is looking increasingly bullish when you look at the charts, pointing to a potential breakout in the footsteps of gold.
Silver looks poised for major technical breakout
The poor man’s gold, silver, is yet to stage a similar breakout to gold. However, the grey metal is coiling for a potential breakout.
Silver has remained in a consolidation phase since it staged a big surge during the peak of the pandemic in 2020, after a brief dip below the pivotal support level of $20.
It managed to climb to $30 by 2021. However, since then, each attempt at a breakout has faltered. Nevertheless, it has managed to maintain above the critical breakout level of around the $20 mark over the long term, albeit with some deviations.
A bullish trend line has emerged in more recent years, yet it has not managed to break the bearish trend thus far. Essentially, it has been consolidating its gains post-pandemic for nearly four years.
However, because gold has been consistently reaching new record highs and its bullish momentum is gaining momentum, this could potentially induce a similar breakout for silver.
What particularly fuels my bullish sentiment toward silver is its prolonged consolidation period of approximately 3.5 years.
This suggests that once it breaks out to the upside, the subsequent technical buying could be as significant as the period of consolidation, meaning that silver could potentially not only head to the top of the range at $30 but it could potentially climb well above that and head towards its all-time high near $50.
On the daily chart, you can see that silver is holding its own above the 21-day exponential moving average, which has only recently broken above the 200-day moving average to provide us with a short-term technical signal.
Most recently, silver broke above $25 and almost reached the December high at $25.92, before pulling back to drop along with major currency pairs.
However, the weakness has not led to a proper sell-off and it has instead consolidated around key support near $24.50. This level is going to be very important moving forward. While $24.50, holds I think there is a good chance that silver could start its next move up from around current levels.
On the daily chart, one can see that silver is maintaining its position above the 21-day exponential moving average. Recently, this moving average has crossed above the 200-day moving average, providing a short-term technical signal. Silver surpassed the $25 mark and came close to the December high of $25.92 before retracing a couple of weeks ago.
However, this retracement hasn't triggered a significant sell-off; instead, silver has consolidated near the crucial support level of around $24.50. This level holds substantial importance for future movements. As long as $24.50 remains intact, there's a strong possibility that silver could initiate its next upward movement from around current levels.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.