Silver (XAG) Forecast: Outlook Turns Volatile as Speculative Buying Detaches From Demand

Silver Hits Record High Before Retreating: Reversal Pattern Emerges

Spot Silver is trading lower late in the session on Thursday after hitting a record high earlier in the session at $121.67. The price action has put the market in a position to post a simple closing price reversal. The chart pattern is not indicative of a change in trend, but rather a move designed to alleviate some of the upside pressure following a prolonged rally in terms of price and time.

At 21:00 GMT, XAGUSD is trading $4616.04, down $10.53 or -0.23%.

Key Technical Levels Signal Potential Correction Ahead

One key to this chart pattern developing into something other than a volatile minor top is the follow-through move. A trade through Thursday’s low at $106.77 will confirm the reversal chart pattern. This could trigger the start of a 2 to 3 day correction, often equal to 50% to 61.8% of a major swing.

Critical Retracement Zones Define Support Targets

The nearest minor swing is $90.33 to $121.67. Its 50% to 61.8% retracement zone is $106.00 to $102.30. The intermediate swing is $70.07 to $121.67, making $95.87 to $89.78 a potential target zone.

Uptrend Lines Provide Additional Support Framework

Besides the retracement zones, the selling could extend into a pair of uptrend lines. The first one from the $70.07 bottom is moving up at a rate of about $1.45 per day. This puts it at $100.46 on Friday.

The second uptrend line from the November 21 main bottom at $48.64 is moving up at a rate of about $0.79 per session. It comes in at $86.74 on Friday.

A trade through $121.67 will negate the reversal pattern and the retracement zones will move up. As long as this top remains intact, then watch for days when the trend line passes through the retracement zones—these will become more powerful support areas.

Gold’s Sharp Decline Triggers Silver Selloff

Silver was led lower by gold on Thursday when the yellow metal collapsed more than 5% on profit-taking after touching a record high at $5,602.23 earlier in the session. During its sell-off, it came close to hitting a trendline/50% level support cluster.

XAUUSD fell to $5,097.21 before rebounding. The retracement level came in at $5,069.36 and the uptrend line from the $4,536.49 bottom was at $5,067.05, forming a $5,069.36 to $5,067.05 support area. On Friday, the trend line will move up to $5,125.94, or about $58.95 per session.

Speculative Buying Fuels Exaggerated Price Swings

Volatility is likely to remain the theme in the silver market over the near-term. Due to its relatively small market cap compared to the S&P 500 Index, speculative buying could create exaggerated moves. Guy Wolf, global head of market analytics at Marex, says that silver has “totally detached from where physical demand is robust.”

In other words, the long-term bull market could remain intact as long as demand remains high and the supply deficit remains an issue. The short-term is being driven by momentum and volatility, but remember—they go both ways.

More Information in our Economic Calendar.