Silver (XAG) Forecast: Price Prediction Hinges on 50-Day MA and PCE Report

Silver Edges Higher But Sells Off Into Close, 50-Day MA Is Key

Spot Silver (XAGUSD) is edging higher late Thursday, but more than a dollar off its high, indicating selling pressure into the close. The market shot up early in the session on safe-haven buying tied to the simmering tension in the Middle East between the United States and Iran. However, gains may have been capped by hawkish Fed minutes from late Wednesday.

Trading at Same Level as January 9—Can It Breakout Again?

Silver is currently trading where it was on January 9, the day before it broke out to the upside over the December 29 top at $80.03. That breakout led to the surge to $121.67 on January 29. Will we see a similar move again? I don’t think so because the fundamentals have shifted to the bearish side. Can it still breakout to the upside on safe-haven buying? Possibly, but the buying will have to be strong enough to first overcome the 50-day moving average at $81.24 then a 50% level at $83.61 before traders will target tops at $86.32 and $92.20.

Major Resistance Zone at $92.87 to $99.66 Likely to Cap Gains

Even if it takes out all of those potential resistance levels, I think gains will be limited by a major retracement zone at $92.87 to $99.66. I have been waiting for the market to test this area for two weeks, but there hasn’t been enough speculative buying to generate the upside momentum needed. Perhaps this is what it looks like when an exchange raises futures margins 3 or 4 times in a month.

50-Day Moving Average Is the Stopper—Big Seller Waiting to Buy Cheaper?

Anyway, the 50-day moving average is the key. The inability to overcome this indicator means there is a stopper in there. It could be a short-seller or just a big enough trader to block buyers from advancing prices just so he can buy it at a cheaper level.

The Bearish Scenario: Break Below $71.98 Opens Door to $64.06 or Even $52.09

If we assume the big seller theory – looking to buy cheaper – then how can it unfold? First, defend the 50-day moving average from an upside breakout. Secondly, take out the next support level at $71.98. With no other support until the February 6 bottom at $64.06, we could be looking at a pretty steep break. The catalyst behind the start of this move could be a bearish PCE Index report on Friday, and/or a strong rally in the U.S. Dollar, which will make silver less attractive to foreign traders.

War Premium Could Disappear Quickly if Peace Breaks Out

Additionally, if prices firmed on talk of military activity between the United States and Iran, then this small “war premium” could disappear quickly if peace were to suddenly break out in the Middle East. That would bring us back to $71.98, which is both the starting point for the rally and a potential trigger point for an acceleration to the downside.

That’s how I see a bearish scenario playing out over the near-term. And if it were to occur with passion and conviction, prices can even decline to the 200-day moving average at $52.09. This indicator represents support and value.

The Bullish Scenario: Breaking 50-Day MA Targets $92.87 to $99.66

The 50-day moving average will also play a role in a potential breakout to the upside. A sustained move over it could trigger an acceleration through the two main tops at $86.32 and $92.20 with $92.87 to $99.66 the main objective.

Liquidity is thin due to the Asian New Year so volatile swings like I described are possible, although Asian traders seem to have a bias to the upside.

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