Silver on the Move: Where to Next?

Gold's ‘poorer cousin’ seems to have gotten a makeover.

Silver had a woeful start to 2023 that saw a 12% dump in February replicating its worst selloff from six months ago. But in recent weeks, it has gained upward trajectory that has led it to catch up with the momentum in gold.

At the time of writing, silver, the so-called white metal which serves more as an industrial metal versus the safe haven that gold is made out to be, was up about 5% on the year. It hovered at above $25.50 an ounce, versus its 2023 start of under $24 and the March low of beneath $20.

Charts by SKCharting.com, with data powered by Investing.com

Gold, meanwhile, is up 10-11% on the year, going from a December close of under $1,850 to around $2,030.

The momentum behind silver since its recovery from the August tumble of 12% — which marks its worst monthly decline since an 18% plunge in September 2020 — suggests a series of highs that could take the metal to a peak of $30 at some point, says Jeff Clark of TheGoldAdvisor.com. He adds:

"I think this is the time you need to get long. I don't think — gold's not going back down to $1,500, silver's not going back down to $15."

Sunil Kumar Dixit, chief technical strategist at SKCharting.com, concurs partly, putting a potential peak at $29.10 but also assigns a low at $22.85, depending on the market’s twists and turns.

Context

A rose by any other name would smell as sweet, we hear. Yet, silver bulls often feel like the neglected stepchild of the precious metals bucket, typically lagging the advance in gold.

What gives?

Well, it’s not just what’s in a name. Gold is more of an inflation hedge; the go-to now for anyone seeking a safe haven in troubled times. Silver, on the contrary, is known as an out-and-out industrial metal; critical especially in renewable energy. Both serve distinctly different purposes.

This year’s banking crisis and the post-pandemic inflation hangover that the Federal Reserve has been fighting with the sharpest rate hikes in 40 years will explain why gold has reached its recent zenith of above $2,000.

Silver is a key element in solar panels, due to its usage in photovoltaic power, which drives some of the leading sources of renewable energy globally. With about 20 grams of silver being used in every solar panel, this continues to be a vital source of demand for the metal.

Some say silver also attracted some haven flows during the U.S. banking crisis, only that its standing against gold has been underplayed as always.

Yet, silver is closing the gap now in performance, having already surpassed gold’s percentage gains for the year.

The Bull Case

Clark of TheGoldAdvisor.com thinks that just as gold has the potential to reach all-time highs above $2,500 this year, silver could surpass $30. In comments carried Tuesday by Investing News Network, Clark adds:

“I think this is the time you need to get long. I don’t think — gold’s not going back down to US$1,500, silver’s not going back down to $15. The only way they would have a crash at this point is if all markets crashed like we saw in the COVID crash — everything crashed temporarily. That’s the only thing that’s going to cause that.”

Speaking about whether it makes sense to buy gold at this high level, Clark said the precious metal should be viewed as insurance and mentioned that he added three ounces to his portfolio the day Silicon Valley Bank collapsed, triggering the U.S. banking crisis of March.

“What if $2,000 gold is low? What if gold’s going to $2,500? What if it’s going to $3,000?” he questioned. “Those levels are definitely possible this year — I could easily see it going to $2,500. So the current price would be low.”

When it comes to silver, Clark noted that the white metal tends to outperform gold when it starts to move. He adds:

“I do still think silver is going to go to $30 this year. The reason is that once silver gets going, silver is very spiky; it’s very volatile. It’s almost violent sometimes in how much it rises or falls, so if you have a rise in gold, silver’s going to outperform it. We’ve seen this repeatedly throughout history,” he said. “So if gold does rise, silver is going to follow it.”

Adds Dixit of SKCharting. referring to spot silver:

“As long as spot silver sustains above the 5-day EMA, or Exponential Moving Average, of $25, the current bullish momentum will continue towards potential targets that begin with $25.80 and $26.20.

If spot silver gains stabilization and strong acceptance above this zone, its next target sits at $27.57, which is a 161.8% Fibonacci extension of the retracement measured from the high of $24.65 and low of $19.90.”

On a mid-term perspective, Dixit said the major target for bulls is seen at $29.10.

“This is the possible finishing line of the impulsive wave B-C in spot silver charting.”

The Bear and Neutral Cases

A sustained break below the 5-day EMA of $25 will put spot silver under pressure, cautions Dixit.

“We are likely to witness a further drop to the horizontal support zone of between $24.65 and $24.55. If this zone fails to hold as support, expect an extended decline towards the Daily Middle Bollinger Band of $23.60, followed by the 100-day SMA, or Simple Moving Average, of $22.85.”

Still, spot silver could witness a sideways consolidation from the current high of $25.40 to $25.60 on the peak side and the 5-day EMA of $25, which is likely to keep the market ranging, Dixit concluded.

***

Disclaimer: The content of this article is purely to educate and inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.

------------------------------------------------------------------

Join our last webinar on InvestingPro tomorrow. Enroll now!