Silver Plays Catch Up, but Will the Rally Sustain?

This week, SLVR/XAG-USD prices are up an impressive 4.80% as prices briefly touched highs of $17.0 per troy ounce, posting a 10-month high. The pop in SLVR/XAG-USD came as precious metals surprised to the upside this week and came just a few hours after US housing starts and building permits data showed a dismal report which sent the dollar weaker during the day.

Analysts watching SLVR/XAG-USD expect prices to move steadily supported by weaker dollar. Unless the Fed starts sending out strong hawkish signals, the current economic situation in the US is pointing to a weaker first quarter GDP growth. The Federal Reserve is expected to meet in April, next week and will most likely keep rates unchanged. However, questions still linger on how the central bank will proceed the months ahead. Questions are being asked on whether the Fed will manage to hike rates in June, given the additional uncertainty surrounding the UK’s EU membership referendum on June 23rd. Some expect the Fed might hold off hiking rates in order to maintain some form of normalcy in the markets ahead of the crucial geo-political event which could easily impact the Eurozone and the UK.

In recent times, the widely watched GLD/XAU-USD/SLVR/XAG-USD ratio has quickly reversed off the 83 levels. This comes after nearly four years of an uptrend in the GLD/XAU-USD/SLVR/XAG-USD ratio which has seen GLD/XAU-USD outperforming SLVR/XAG-USD by a strong margin. With the ratio seen to be reversing near the peak of 83 and breaking the long term trend line, we could anticipate further declines in the ratio, which translates to SLVR/XAG-USD prices likely to outpace GLD/XAU-USD in terms of relative performance.

While GLD/XAU-USD managed to start off on a strong footing, SLVR/XAG-USD prices have managed to catch up to the rally in GLD/XAU-USD. On a year to date basis, SLVR/XAG-USD futures are currently up 23.61%, while GLD/XAU-USD slipped to the second spot, gaining 17.77%. Both the precious metals have in fact landed on the top end of the scale, clearly outperforming assets from other sectors.

However, there are still questions as to how well the current rally in SLVR/XAG-USD can be sustained and also how would the metals react once the Fed starts to move faster on the rate hike cycle.

Technical charts for SLVR/XAG-USD shows prices quite recently moving into bullish territory as the 50 period daily EMA made a golden cross against the 200 period EMA. The bullish break out was also validated by prices breaking a long term falling trend line in SLVR/XAG-USD indicating potential upside. $18.50 resistance is an immediate threat to the upside and one which could possibly keep prices pressured, but a break above $18.5 could expose a test to $20, a level last seen in late 2014.

For investors, the big question is whether the current breakout in SLVR/XAG-USD will see prices rally to $18.5 and possibly the $20 target and even more importantly, it begs the question as to which levels make it ideal to ride the long side on SLVR/XAG-USD.

Support on the daily chart is identified near the $16 – $15.5 level which has previously acted as a strong resistance. However, investors might be familiar with the moves in GLD/XAU-USD which broke out strongly from the $1050 levels in December last year and surged to currently trade near the $1250 handle. While it would be hard to put a finger on where Slvr/XAG-USD could pullback, a dip to %16 – $15.5 would be an opportunity not worth missing.

This article was written by Christopher Glen, Head Analyst of Binarybrokerz.com