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Silver: Possible Dip Below $30 Is a Buying Opportunity - Watch These Levels

Published 03/06/2024, 10:41
Updated 11/03/2024, 11:10
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Gold and silver prices fell further in early European trade, following their modest losses the week before. This morning’s losses coincided with the dollar index bouncing off its 200-day average again ahead of a busy week for macro data and central bank action.

In recent days, we have seen the precious metals struggle to hold onto gains, and Friday’s Core PCE data failed to reduce fears over "higher for longer" narrative on interest rates. Amid a lack of major fresh bullish catalysts, metals traders have been happy to book profits after what has been a strong year so far in the sector.

The macro outlook remains bullish and after a bit of consolidation, I am expecting the bull trend to resume, especially as silver now tests the upper end of it prior resistance at just below $30.

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ECB and NFP among week’s key macro highlights

The week ahead is busy with lots of key data releases.

Among the US macro pointers, we will have the latest ISM PMI surveys from the manufacturing and services sectors, as well as JOLTS Job Openings, ADP private payrolls and jobless claims data. But the key highlight is on Friday, June 7, when the May jobs report is published.

The Fed has indicated it is willing to wait until the summer ends before potentially cutting interest rates. Friday’s jobs report and wages data should provide further clues on that front, as too will the other key US data highlights mentioned above.

In recent weeks, we have seen bond yields rise, with investors growing increasingly worried about the possibility of interest rates staying elevated for a longer period. If that sentiment changes, say because of a run of below-forecast US data, then that is something that may provide metals renewed support again and undermine the US dollar.

Meanwhile, on Thursday, June 6, the European Central Bank is expected to deliver its first rate cut of the year. The key question is how many more will follow, if any? High wage pressures and improving macro data in the Eurozone present a major dilemma for the ECB ahead of its rate decision.

However, a 25-bps rate cut may go ahead anyway given that the ECB has built it up so much. If so, this should have some positive implications for metals as looser policy reduces the appeal of bonds from a yield perspective.

Gold and silver remain in dip-buying mode

With many investors who missed out on the recent surge in gold and silver prices, they are now monitoring for chances to purchase during price dips. Advocates for precious metals emphasize their recent resilience in the face of a strong dollar and rising bond yields.

They contend that with prices no longer excessively inflated, the upward trajectory could continue, especially considering the metals’ underlying factors like ongoing central bank acquisitions of gold and the role of precious metals as an inflation hedge. Following years of excessive inflation, fiat currencies have significantly depreciated, prompting investors to view precious metals as a dependable safeguard against inflation.

Silver technical analysis and trade ideas

Silver fell below $30 an ounce early this morning before bouncing back to climb above this psychologically- and technically-important level. It will be very interesting to what silver does here. A daily close above $30 will keep the bulls happy and maintain the bullish trend we’ve seen throughout this year, while a closing break back below $30, could lead to some further short-term weakness before we potentially see the return of the rally.

The long trend remains bullish despite what trajectory the short-term price action takes, following that big break we saw a couple of months ago which ended 3 1/2 years of consolidative price action, and this was resolved with prices breaking higher. Therefore, even if prices were to weaken further, this would most likely be just a short-term pullback ahead of the resumption of the existing trend at a later point in time.

Here's a long-term weekly chart, showing a potential path towards the range breakout measured move target to $42.60ish.

Silver Weekly Chart

Now on the lower time frame, what I would be looking for here is for prices to create a short-term bullish structure above $30 now. For example, this could be a break above a continuation pattern like a triangle or a bull flag like that silver broke out in early May that led to subsequent gains throughout the month. Either that or a hammer-like candle holding above $30.

Silver Daily Chart

So, in summary, then, the path of least resistance on silver remains to the upside despite its recent struggles. Even if silver were to go below $30 on a daily closing basis, we could see a potential resumption of the bullish trend at a later point in time given the long-term bullish technical structure. But in that case, it just means that we will have to wait a little bit longer, requiring more patience on the bulls’ part.

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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.

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