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Silver Sets Stage for Rally to $35 - Today's Dip a Great Buying Opportunity

Published 07/08/2024, 06:10 AM
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  • Silver has shown fresh signs of bullish price action, with technical indicators suggesting a possible rise towards $35 in the coming weeks
  • Upcoming US Consumer Price Index (CPI) data will be crucial, potentially influencing silver prices as investors react to inflation and dollar trends
  • The recent drop in the gold-silver ratio indicates that silver might outperform gold, reinforcing my bullish outlook for silver
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Silver staged a slight drop of about 1% on Monday morning after enjoying its best weekly gain since mid-May, with a rise of approximately 7%. This surge came as the metal broke out of a continuation pattern, buoyed by a weakening US dollar against a basket of foreign currencies.

This was driven by weak US data, which raised investor expectations of a September rate cut by the US Federal Reserve. Concerns about the French elections on Sunday also boosted precious metals' appeal last week. However, a surprise win for a left-wing alliance, which helped keep Le Pen's far-right from power, partly explains why both gold and silver started this week on the backfoot, as European shares rebounded in a mild risk-on session.

This week, all eyes are on US inflation, putting the dollar and dollar-denominated assets like gold and silver under sharp focus. Despite their weaker start to the week, gold and silver might have significant upside potential. Dip-buying remains a preferred strategy in precious metals.

Dollar Drops on Weak US Data

Last week’s US data largely disappointed expectations, including the ADP private payrolls, unemployment claims, factory orders, and ISM manufacturing and services PMIs. The June payroll data released on Friday was also disappointing, despite the headline jobs growth exceeding expectations with a print of 206,000. However, significant downward revisions to the previous two months, with 111,000 fewer jobs added than initially reported, caused the three-month moving average of jobs created to its lowest point since January 2021.

Upcoming CPI Data

The focus now turns to the latest Consumer Price Index (CPI) measure of inflation, to be released on Thursday, July 11. After a weaker-than-expected rise of 0.2% in monthly core CPI and a flat headline reading, US dollar bears were hoping for a more pronounced drop last month. Instead, the greenback held its ground, especially against the yen and euro, until it dropped on weak US economic data last week.

This supported currencies where the central bank is more hawkish than the Fed, such as the AUD. Another weaker-than-expected CPI print might lead to expectations that the disinflation process has resumed, boosting the appeal of precious metals, especially silver, which recently showed a fresh bullish signal by breaking out of its flag pattern.

Gold-Silver Ratio Indicates Silver’s Potential

The gold-silver ratio dropped last week after reaching a key resistance area between 80.30 and 80.55. This follows a significant breakdown below a multi-year bullish trend line in early May. Given that the gold-silver ratio has held resistance here, it suggests that silver might outperform gold again.Gold-Silver Ratio

Silver Technical Analysis and Trade Ideas

Until last week’s recovery, silver had been trending lower in recent weeks. However, after testing a major support area around $28.70 to $29.00, buyers have evidently stepped back in, pushing silver back above several short-term resistance levels.

Some of these levels will need to hold to maintain the renewed bullish trend. Silver has reclaimed the bullish trend line in place since February, climbed back above the 21-day exponential average, and more importantly, broken the resistance trend of its bull flag pattern around the $30.00 to $30.20 area.Silver Daily Chart

Key Support and Resistance Levels

The $30.00-$30.20 range is now a key support area to monitor this week, especially in light of upcoming CPI data. Ahead of this area, silver was testing a short-term support area around $30.85 at the time of writing, with an additional support level slightly lower at $30.58.

The critical level is around $28.70, representing the recent lows. A potential break below this area would invalidate the bullish view, given that we have now seen an interim higher high and a breakout from the bull flag pattern to the upside.

Upside Targets

For upside targets, $31.50 is the first line of defense for the bears, followed by $32.00 and then the May high just above $32.50.

Long-term Outlook: Silver sets stage for a rally to $35

XAG/USD Weekly Chart

Looking at the long-term weekly chart, silver could be on the verge of a much bigger move, having recently broken out of a long-term consolidation zone. As it stands, silver might rise towards $35.00 in the coming weeks, if not higher.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel 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 perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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