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Silver Potentially Gearing Up for Breakout Above $30: Key Trading Levels to Watch

Published 04/29/2024, 05:34 AM
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  • Gold and silver prices dipped last week as the strong dollar and inflation worries weighed on sentiment.
  • This week's US economic data could determine the metals' short-term direction.
  • Despite recent weakness, a potential long-term rally remains in the offing for silver, particularly after its breakout from a multi-year consolidation.
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  • Last week saw both gold and silver close lower as investors finally responded to the recent strength of the US dollar and reduced Fed rate cut bets amid hot inflation data.

    This week, we will have plenty of US macro highlights to look forward to, which could impact at least the short-term trajectory of precious metals.

    But with the metals largely ignoring the strength in the US dollar and bond yields for much of this year, could we start to see the next phase of the rally commence this week, following the recent consolidation/small pullback in prices?

    Gold and silver remain in dip-buying mode

    While a more substantial correction remains a possibility, both metals remain in demand, particularly gold. This is essentially because of years of high inflation chipping away at the value of fiat currencies, which is the same reason why Bitcoin has also been hitting record levels, before its recent consolidation phase.

    With many investors who missed out on the recent surge in gold and silver prices, they are now monitoring for chances to purchase during price dips. Advocates for precious metals emphasize their recent resilience in the face of a strong dollar and rising bond yields.

    They contend that with prices no longer excessively inflated, the upward trajectory could continue, especially considering the metals’ underlying factors like ongoing central bank acquisitions of gold and the role of precious metals as an inflation hedge.

    Following years of excessive inflation, fiat currencies have significantly depreciated, prompting investors to view precious metals as a dependable safeguard against inflation.

    On the other hand, the bears argue that elevated yields and diminished expectations for Federal Reserve interest rate cuts in 2024 are likely to bolster the dollar, exerting downward pressure on gold and silver, as well as other metals denominated in dollars.

    Nevertheless, this scenario has yet to materialize so far in 2024, which must be – as it so far has been – a bullish sign.

    Silver trying to form a base around $27

    Silver’s rally which was also fuelled by a technical breakout above key resistance in the $25/$26 area, came to a halt in the last week and a bit. Both silver and gold had reached overbought levels, so it was hardly surprising to see the metals retreat somewhat from their recent highs. That said, the big breakout in silver after a multi-year consolidation means traders will be happy to buy the dips.

    Silver Monthly Chart

    So, I am expecting to see more gains for silver this year, particularly because the grey metal has not even neared the highs of its most recent years around $30, let alone its record peak of near $50 that it had hit in 2011.

    In contrast, gold has been hitting repeated all-time highs, until easing back in the last couple of weeks. Thus, silver has a lot of catching up to do on the upside, and the recent technical breakout from a 3.5-year consolidation phase may well be the start of a long bull market.

    Silver Daily Chart

    Silver trade ideas

    While an ideal long entry area could be on a potential dip back to the $25-$26 area, which was the base of this month’s breakout, an alternative approach would be to see if silver can consolidate inside a bullish continuation pattern around current levels, and then look to potentially buy once it breaks higher or about to break higher.

    On the daily time frame, we have seen silver forming a few interesting-looking candles in the last few trading sessions, including a couple of hammers off support and a 21-day exponential moving average around the $27 area. So, perhaps the metal could launch higher from around the $27 support area, although it is a bit early to tell as prices consolidate inside what looks like a bullish flag pattern.

    In any case, silver remains in a dip-buying mode as undoubtedly many people have missed this big upmove and will be looking to get on board when the opportunity arises. The good news is that the Relative Strength Index (RSI) has worked off its extremely overbought conditions and now it is in the sweet spot of just above 50.0.

    ***

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    Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

    Read my articles at City Index

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