Silver (XAG) Forecast: Will Silver Bounces at $74-$64 Launch Next Leg of Bull Rally?

Silver’s Parabolic Rally Exposed Three Types of Traders — Now What?

In analyzing the Spot Silver market over the weekend, I saw a pretty common pattern that tends to impact commodity markets, or markets that rely on supply and demand. I also saw confirmation that the higher a market moves, the greater the price swings. In a bull market, the more the market reveals about its direction, the more expensive it gets to play the game.

Early Monday, XAGUSD is trading $79.85, down $5.34 or -6.27%.

Accumulators Built the Base — Slowly, Patiently, Profitably

When silver was slowly moving along the 52-week moving average from April to June, traders saw an out that they were comfortable with and was relatively inexpensive. At the time, $50 silver was still a dream as well as a new record high. As the market revealed more of its intentions, the upside took care of itself and the market began to pull away from its safety net (52-week MA), but traders knew the risks.

It wasn’t even until early October that we saw a swing top at $54.49, which led to the new swing bottom at $45.55. This little swing then fueled the breakout to the upside that lead to last week’s record high at $121.67. You can see on the weekly chart that the weekly bars widen as the move became clear, therefore more expensive.

Momentum Traders Chased the Breakout — Then Disappeared

The support base was built by accumulation. People that wanted to own silver and were willing to wait for a rally. I’m not trying to be funny, but I saw some comments that old-timers from the ’80s had waited 46 years just to get their money back. The rally after the breakout to a new high in early December attracted the momentum traders and the market went vertical or parabolic. These players were chasing it and they pushed the market to an all-time high.

All this tells us is that there are different players in the market, the long-term accumulators and the momentum traders are just two. Let’s call a third player the value-seeker. That brings us to the current setup. Essentially, a value-seeker likes the long-term outlook, but wants to enter on his terms.

Value-Seekers Will Determine the Next Leg Higher

He might be described as the player who didn’t like it at $28.31 to $54.49 late last year, and he didn’t buy it at $121.67 because it had already made its move and is now too high. His usual response centers on 50% to 61.8% of the major swings. That’s what he views as value. The next move in the market will be determined by how the value-seeker responds to the pullback into his price targets. The long-term trader, he already owns it and he may like it more $50 lower than it was a week ago. The momentum trader? Well I think he’s gone, moving on to the next opportunity.

Target Zone: $74.99 to $63.97 — That’s Where Bulls Need to Show Up

The value-seeker is looking at $28.31 to $121.67 and its retracement zone at $74.99 to $63.97. Another zone of interest is $45.55 to $121.67 with a 50% to 61.8% retracement area at $83.61 to $74.63. Blending the two produces a wide target area at $83.61 to $63.97. But fine tuning it, reveals $74.99 to $74.63. That’s the sweet spot on the chart that could attract new buyers.

A 46-Year Base Suggests $121.67 Won’t Be the Final High

One thing to note, one of the first rules of trading I learned from an old-timer was “The height of the market is determined by the length of its base.” If the support base is 46 years long then my assumption is that $121.67 won’t hold as the record high for long. I haven’t worked on any targets yet, but I am certain that the next rally is not going to start until the value buyers step in and begin to build a support base. This may take the whole month of February or longer.

Ideally during the consolidation process, I’d like to see the 52-week moving average that guided this market higher in 2025, converge with the value area. That would give even more players a reason to want to own silver.

More Information in our Economic Calendar.