Silver Punches Above $18.00, More Gains to Come?

Silver has started the week with considerable gains, breaking above 18.00, a psychologically significant level. In the European session on Monday, the metal is trading at $18.38, up $0.42, or 2.36% on the day.

Silver enjoyed a winning week for the first time since August, and the upward movement has continued on Monday. Traders should note that seven of the past eight daily sessions have ended with gains, which points to a sustained rally for silver. It was only a few weeks ago that silver rallied and climbed as high as 19.43, but the metal ran out of steam and proceeded to record sharp losses which saw silver fall back to vicinity of 18.00.

With no major U.S. events on Thursday, we could see silver level off during the next few days and stay close to the 18.00 line. I expect to see some movement on Thursday, with the release of U.S. GDP and core durable goods orders. These key releases will provide a good test for silver – are investors still treating it as a safe-haven asset? If the answer is affirmative, then the mood of investors will have a strong impact on the direction of silver. A solid GDP release would likely increase risk appetite and reduce the attraction towards safe-haven assets like gold and silver. Conversely, if GDP is unexpectedly soft, weaker risk appetite should boost safe-haven assets.

Technical Analysis 

Silver flirted with the 18.00 line throughout last week, but was unable to break above this resilient line. Silver finally flexed some muscle in the Asian session, pushing past this line and climbing as high as 18.43. Silver has another test at 18.60, which has held in resistance since September 2. If silver can break through, we could see the upward momentum continue towards the symbolic 20.00 level. At the same time, a retracement remains a possibility, as the 18.00 is still vulnerable. Below, there is support at 17.50.

XAG/USD 4-Hour Chart