Silver Is Bouncing Because It Got Cheap
Spot silver finished higher Friday after Thursday’s break to $58.50 brought in buyers. It did not get a new silver story. The market got cheap below the long-term 50% level, gold turned higher at the same time and shorts started giving back some of the week’s sell-off.
Silver ran as high as $61.19 Friday, then finished at $60.82, up $1.63 or 2.76%. It closed just below the long-term 50% level. That put it back inside the zone that broke earlier in the week.
Daily Spot Silver (XAGUSD) Technical Analysis
Spot silver finished higher on Friday, slightly below the midpoint of the all-time high at $121.67. The main trend is down according to the daily swing chart. A trade through $58.50 will signal a resumption of the downtrend, with $56.56 the next target. The main trend will change to up on a move through $67.55.
The minor trend is also down. A new minor bottom was created at $58.50. The minor trend will change to up on a trade through $62.09.
The key level to watch is the major 50% level at $60.835. Overcoming this level will be the first sign of strength, but additional resistance is a 61.8% level at $61.04, the minor top at $62.09, a short-term 50% level at $62.98 and the 50-day moving average at $64.28.
However, this outlook is likely to weaken over the short term if buyers recover $60.835 and create enough upside momentum to change the minor trend to up on a trade through $62.09. The move will strengthen on a sustained move over $62.98, which could make the 50-day moving average at $64.28 an area for renewed selling pressure or trigger a breakout to the upside.
On the downside, a failure to follow through to the upside over $60.835 would signal the return of sellers. This could lead to a test of the minor bottom at $58.50. Taking this out will signal a resumption of the downtrend, with $56.56 the next target.
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See all Silver forecastsGold Did the Heavy Lifting
Gold found buyers after Wednesday’s washout near $4,000. Silver went along because it was the cheaper metal and had already taken more damage.
Friday’s move was gold’s rally. The softer dollar and a pullback in Treasury yields helped the metals, but silver did not bring its own buyers. It rode gold’s bid back to the long-term midpoint.
Gold did all the work. Silver has to hold the midpoint and push through resistance on its own. Right now this is a gold trade, not a silver trade.
The Dollar and Yields Backed Off, but Neither One Broke
The dollar and long-term Treasury yields came off their highs Friday. That took pressure off the metals, but neither chart says the move is over.
The 10-year Treasury yield reached 5.365% earlier in the week and pulled back near 5.24% Friday. It is still well above its 50-day and 200-day moving averages. The pullback did not take yield buyers out of control.
The Dollar Index reached 102.535 Monday and was holding near 102.20 Friday, still above its moving averages. That is a pause after a strong run, not a confirmed top.
Those two markets drove silver down earlier in the week. They pulled back Friday but stayed above their moving averages. Silver is going to have a hard time building on its bounce.
The Fed Is Still Leaning Against the Metals
The Fed has not made the metals trade any easier. St. Louis Fed President Alberto Musalem said another rate hike would be needed to get inflation back to target. Additionally, Governor Christopher Waller did not push back on another hike.
FedWatch showed an 84.7% chance of at least one increase by the December meeting. The largest bet was for the target range to move to 4.00% to 4.25%, with a 69.0% probability.
Silver may have priced in some of that rate risk during the break to $58.50. High oil, a firm dollar and long-term yields near their highs can bring sellers back quickly. Friday stopped the bleeding but the rate picture is the same heading into next week.
What to Watch
The dollar and yields pulled back Friday but neither chart broke. Those are the first screens for silver heading into next week. The Fed is still leaning toward higher rates. Silver’s bounce was gold-led and did not bring its own catalyst. The recovery depends on gold.
The next move comes down to trader reaction to the major 50% level at $60.835. Buyers pushed back to it Friday after defending $58.50 but did not close above it. The main trend is still down with the 50-day moving average at $64.28 overhead. The minor trend has not cleared $62.09. Friday’s bounce is a recovery inside a downtrend, not a base.
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