Silver (XAG) Forecast: Silver Bounces as Oil Drops, Eyes Break Above 50-Day

Spot Silver Claws Back but the 50-Day Is Still the Test

Spot Silver (XAGUSD) is pushing higher for a second straight session Friday after buyers stepped in Wednesday and held the short-term retracement zone. The metal is crossing back to the bullish side of a key long-term 61.8% level. As of 17:50 GMT, XAGUSD is trading at $75.92, up $2.17 or +2.95%.

Technical Outlook

Like gold, the price action the last three months has been controlled by a long-term retracement zone and moving averages. While price compression is often painful to endure and could lead to loss of capital if you’re a breakout, momentum style trader, it does serve its purpose by shaking out some of the weaker traders. My experience has shown me that the tighter a market is wound, the greater the chances of a successful breakout.

Before going into the details, I think it’s important to establish trend indicators. My trend indicators are the main and minor swing charts and the 50- and 200-day moving averages. I tend to favor a top-down strategy. The 200-day moving average at $62.75 is my long-term indicator. The 50-day moving average at $78.33 is my short-term indicator. Based on the current price at $75.92, the long-term trend is up and the short-term trend is down. Visually, this makes sense because you can see on the chart that these two indicators have been holding the market in a range.

My main and minor trend indicators are both in downtrends. That’s usually determined by the lower-top, lower-bottom chart pattern. The main bottom is $61.00 and the nearest main top is $83.06. Today’s price action is already suggesting that $70.86 may become a new main bottom.

The key retracement zone is $83.61 to $74.63. The market is currently straddling the lower level. The short-term range is $61.00 to $83.06. Wednesday’s low at $70.86 was hit inside its retracement zone at $72.03 to $69.43.

The intermediate retracement zone is $121.67 to $61.00. Its retracement zone at $91.34 to $98.49 is a potential upside target.

Putting it all together, I see a market that’s leaning toward an upside breakout over the 50-day moving average. Mid-month, the market gave us a chance to take out an offer and drive the market through the 50-day moving average. The chart pattern was there, but the buying volume wasn’t. A sell-off followed with the market dropping to $72.03 to $69.40. This time, silver was offering traders a chance to enter on their terms, in other words, make a bid.

The subsequent rally has put the market in a position to challenge the 50-day moving average again. If enough buyers can drive through this indicator then look for a surge into $83.06 to $83.61. The latter is a potential trigger point for an acceleration into $91.34 to $98.49.

If an attempt to rally fails at the 50-day, then the sellers will drive the market back into the short-term retracement zone at $72.03 to $69.43. If it fails then look for the selling pressure to possibly extend into the 200-day moving average.

It’s a lot of analysis to look at, but essentially it’s saying, the market is once again going to offer you the chance to chase it higher by buying strength or play for the pullback.

Oil Pulled Back and Silver Got Room to Breathe

June WTI crude oil dropped hard today after Iran signaled it was willing to reopen talks with the United States. The energy market took some heat out immediately. For Spot Silver (XAGUSD) that matters because lower crude takes inflation pressure down with it, and when inflation pressure drops, rate expectations stabilize. That is the environment where silver can find a bid. Not a surging bid. Just enough to stop the bleeding and bring in some short covering.

Yields Eased and That Helped

The 10-Year U.S. Treasury yield pulled back today and that gave silver a second reason to move. Silver carries no yield. When rates climb, the argument for holding it disappears fast. When rates ease even slightly, that argument comes back just enough to attract buyers who were sitting on the sideline. Spot Gold (XAUUSD) is also firmer today and the metals complex is moving together. That combination is behind what you’re seeing in silver right now.

The Supply Picture Has Not Changed

Spot Silver (XAGUSD) is near $76, holding well above the March lows after a sharp correction from the January peak above $121. The supply deficit is still in place. This is the sixth straight year the market is running short and the gap is projected to widen. Inventories in London and Shanghai remain under pressure and Chinese export controls are keeping physical supply tight in Western markets. That backdrop does not go away because crude pulls back for one session.

Industrial Demand Is Still the Floor

Solar, electric vehicles, electronics and AI infrastructure are all pulling on silver simultaneously. Industrial consumption is the backbone of this market and none of those demand drivers are slowing down. Investment demand is adding to it. With Spot Gold (XAUUSD) elevated, silver is the cheaper entry into the metals trade and buyers know it.

What I’m Watching

The 50-day moving average at $78.33 is the level this rally has to clear. It failed there mid-month and sellers came right back in. I’m watching whether this time the buying volume shows up to back the move. If it does, $83.06 to $83.61 opens up and that becomes the trigger for a run toward $91.34 to $98.49. If the 50-day holds as resistance again, the short-term retracement zone at $72.03 to $69.43 is the next test. That is the trade right now.

More Information in our Economic Calendar.