Silver (XAG) Forecast: Silver Rally Overheated—Where Real Value Lies

Silver Forms Inside Day Pattern, Signals Potential Sentiment Shift Ahead

Spot Silver opened steady on Tuesday and held its ground throughout the session while remaining inside Monday’s trading range. An inside trading day typically indicates trader indecision and impending volatility. The chart pattern could also be bullish traders relieving some of the upside pressure or preparing to transition into a shift in momentum. This is why traders should always pay attention to inside moves. They don’t happen often and can signal important shifts in sentiment.

At 21:46 GMT, XAGUSD is trading $112.51, up $8.78 or +8.46%.

Key Support Levels: Understanding Retracement Zones vs. Minor Bottoms

I wrote “shift in sentiment” not change in trend. This is a significant distinction because the last major bottom and change in trend point is at $70.07. Between the current price around $112.00 and that bottom are many potential targets including retracement zones at $104.04 – $102.09 and $95.79 – $93.91. Minor bottoms include $90.33, $86.43 and $73.84.

The retracement zones represent price areas that could be successfully tested if investors think they represent value. The minor bottoms are actual levels that changed the direction of the market at that time.

Trend Lines Reveal Direction and Speed of Silver’s Rally

The second indicators to watch are the trend lines which give traders a sense of direction and speed. The new trend line is $70.07 to $90.33, moving at a rate of about $1.45 per day, putting it at $97.57 on Wednesday. The next trend line extends from $48.64 to $70.97. It’s moving at a rate of about 79 cents per day. On Wednesday, this trendline comes in at $85.15.

50-Day Moving Average Set to Accelerate Higher in February

The 50-day moving average is the intermediate trend indicator. It has been providing support and guiding the market higher since the last crossover in October. It’s currently at $71.31. We’re not interested in the price at this time; we’re more interested in its slope.

Monday, February 2 will be the 50th day from the significant bottom on November 21. The market started this current leg up at that time so the 50-day moving average should begin to slope upward at a more pronounced pace as old prices in the $40s and $50s drop off and new higher prices are added. The 50-day MA will start to move closer to the actual market if prices don’t continue to move vertical. This will help traders identify value more precisely.

Silver Significantly Overvalued: Time to Identify Real Value Zones

In conclusion, we’re not looking for a change in trend, but we do think that price is significantly higher than time and extremely overvalued, leading us to begin our campaign to identify value. Many major analysts had pegged $125 as the high for the year just a little over a month ago. Some had $60 pegged at fair value. To the Fear of Missing Out (FOMO) trader, a nearly $50 rise in one month translates to a $600 rise by December 31. (I’ve been there, I know what you’re thinking).

But silver is a commodity and commodity prices swing in both directions because supply and demand levels change and industrial users stop buying and make substitutions. The only variable that I can’t determine is central bank buying although I can say that the official sector has been a seller in the past, particularly during the 2000s, reminding traders that central bank demand is policy-driven and not guaranteed to persist.

More Information in our Economic Calendar.