Silver analysis: precious metal takes out $30

As we have been banging on about for weeks, silver has finally broken the $30 level today, to reach its highest levels since 2013. Precious metals were looking strong even before the release of this week’s mostly weaker US data. But the weaker data has inspired fresh buying in metals and we could see gold set a new record too in the coming days. Our silver analysis suggests that the precious metal could potentially rise far beyond the $30 level, if the recent gains by gold and copper are anything to go by and in light of the big technical breakout from a multi-year consolidation pattern.

Silver analysis: US dollar resumes drop and Chinese markets rally

This week’s data releases from the US have underscored the view that the economic growth is losing momentum and that inflation is heading lower. This gave traders, who had already been selling into the dollar’s recovery attempts, more reason to swap their dollars for foreign currencies and precious metals. For the same reason, equity indices hit fresh record highs in the US.

The big recovery in Chinese markets and the upsurge in copper all seem to indicate that China has turned a corner, or about to with all the stimulus that the government has unleashed there. What’s more, we have seen improvement in Eurozone and UK data too, boosting the appeal of the euro and pound.

Thus, gold and silver’s recent gains partly reflect a weaker dollar and increased odds of a rate cut by the Fed, although the bulk of its gains have been driven by inflation hedging demand and central bank purchases (in the case of gold).

Silver analysis: Technical levels and factors to watch

Source: TradingView.com

With silver now above the key $30 level, the key question is whether it can hold the breakout. I think it may well hold the breakout given the length of time it had spent below it prior to the breakout. From here, silver could go on much higher. The initial upside targets are those Fibonacci extension levels shown on the chart at $30.82 (127.2%) and $32.13 (161.8%). Subsequent bullish targets could be much higher, which we will cover another time. The line in the sand for this bullish outlook is now today’s earlier low at $29.46. For as long as this level is now maintained, the path of least resistance would be to the upside.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R