Silver (XAG/USD) Price Forecast: Support Holds as Volatility Contracts

Support Zone Holds as Volatility Contracts

Volatility in silver has been declining over the past 11 days as it tests near-term support around the midline of a rising channel and the 61.8% Fibonacci retracement of the prior advance. The Fibonacci level is at $71.85, and it was specifically tested as support on Thursday with a low of $71.79. That low is now a higher swing low and key area of near-term structure support.

Notably, the midline of the channel was undercut briefly intraday, but the session closed above it. There has not been a dip below the midline since the spike low of $61.01 in March. A bullish hammer candlestick pattern formed that day, highlighting buyer interest near support.

A one-day bullish reversal of the hammer pattern triggered on Friday, but the recovery failed to follow-through, leading to a dip into Thursday’s range during Monday’s session and another test of support near the channel midline. The low of the session was $73.85, while the session reached a lower daily high of $76.30.

Bearish Continuation Risks Remain

Based on trend structure, silver is suggesting that the bearish correction that followed the January peak of $121.67 may have further to go. If correct, a drop below $71.79 would indicate a bearish continuation signal. Below that level, support may be found at a higher swing low of $70.87, followed by the 78.6% Fibonacci retracement at $67.07, which is closely aligned with the 200-day moving average near $66.95.

Reclaiming Key Levels Needed for Bullish Shift

However, a breakdown below the uptrend line and a couple of key moving averages has resulted in a sluggish choppy consolidation, even after a pullback to successfully test prior trend support as resistance. A lower swing high at $78.83 formed during the consolidation and is now a key part of structure. In addition, Friday’s high established a minor lower swing high at $76.68. A move above that level would provide the first bullish reversal signal in the current structure. It would also result in reclaiming both the 10-day and 50-day moving averages, which are currently aligned near Friday’s high. An advance above the $78.83 level would also likely reclaim the 20-day moving average as well.

Further confirmation of strength would then be indicated on a reclaim of the 100-day moving average at $81.24 and the downtrend line. A more significant sign of strength would follow if silver subsequently recovers the lower swing high of $89.38 from mid-May. Such a move would reinforce the bullish implications of the support zone discussed above, signaling that the recent period of declining volatility near channel support was a consolidation phase rather than the start of a deeper bearish decline.

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