Silver (XAG) Forecast: Silver Rally Hits New Peak but JPMorgan Warns of Vulnerability

Silver Hits New Record High but Faces Potential Reversal Risk

Spot Silver opened higher Sunday night after finishing the week with back-to-back losses for the first time since January 8. Despite the weakness, which was fueled by profit-taking, buyers came in each day to buy the dip, leading to closes just under the high of each session. This may have driven today’s early strength with the market hitting a new record high at $94.11, just above last week’s high at $93.51.

At 01:08 GMT, XAGUSD is trading  $93.91, up $3.79 or +4.20%.

Key Levels to Watch: Reversal Pattern Threatens Momentum

With the early move to the upside, we’ll be watching all day to see if buyers can sustain the rally. The early focus will be on the previous record at $93.51, but the most important support level will be Friday’s close at $90.12, because a close under this price will produce a potentially bearish closing price reversal top. This chart pattern won’t change the trend to down, but if confirmed, it will shift the momentum to down.

Uptrend Remains Intact with Multiple Support Levels

We’re starting the week with a confirmation of the uptrend, which is defined by a series of higher tops and higher bottoms. The nearest minor swing bottom is $73.84. The main swing bottom is $70.07. A trade through this level will change the main trend to down.

Ahead of Monday’s session, the daily chart had identified key 50% retracement levels at $83.67, $81.79 and $69.53. These levels represent value for those traders choosing to buy the dips. The other choice for some traders is to buy strength.

Technical Indicators Support Buy-the-Dip Strategy

Trend line support, which has guided the market higher since the November 21 main bottom at $48.64, moves up to $79.59. This trend line stopped the selling at $70.07 on December 31 and at $73.84 on January 8.

Another major trend indicator is the 50-day moving average at $65.34.

With all three trend indicators – the swing chart, trend line and moving average – Spot Silver is locked in “buy the dip” mode.

Thin Holiday Trading and Emerging Supply Concerns

Monday is a bank holiday in the U.S. so trading may be subdued. Nonetheless, one has to be prepared for volatility and exaggerated price action due to below average volume. The bullish long-term fundamentals remain intact, but we started to see some hesitation last week after the market posted a new record high. This was reflected in the two straight days of losses to end the week.

Although we did touch a new record high early Sunday night, there wasn’t much of a follow-through rally. We can blame that on the thin trading conditions, but there are also new concerns emerging. According to Reuters, JP Morgan said in a note on Friday that “mounting risks from loosening ex-U.S. supply and ETF outflows to softer industrial demand and tighter Chinese trading curbs, leave silver vulnerable to a sharp correction.”

More Information in our Economic Calendar.