Silver price analysis: two-year support being tested!

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It’s been a while since I’ve talked about the money card. Especially silver versus the major support zone I’m going to talk about today. It’s a pause time for white metal.

Silver‘s big brother, gold, broke below a monthly range when it pulled out $1920. Price pulled back to retest it, but as you would expect from a typical breakout and retest of price action, sellers have piled in and gold is looking to test major support between $1840 and $1850.

Precious metals were hit by a hawkish Federal Reserve and the rising US dollar. It should be remembered that gold and silver do not earn anything, hence why they do well in a low interest rate environment.

The 10-year yield is now above 3% with a resistance zone at 3.23% rapidly approaching. If we break above 3.23%, it could spell trouble for the metals in the short to medium term. But if we reject from here, it could help the metals as they are also testing their support zones.

I know looking at the rates, it doesn’t look too good for metals. However, keep in mind that this is the nominal rate. In real terms, taking into account inflation at 8.5% (or anything above 3% in reality), you are still losing money in bonds.

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The US dollar is important to watch for several reasons, but especially if you are a precious metals investor. Gold and silver have a strong negative correlation with DXY. So if DXY goes up, gold and silver go down and vice versa. Now, that’s not always the case. In times of crisis of confidence, gold and DXY can move together.

The US dollar has been very strong lately. Many believe that Brent Johnson’s dollar milkshake theory leading to a stronger dollar is coming to fruition. What complicates matters is understanding why the dollar is rising. The consensus is due to the Federal Reserve and the price of the dollar in multiple rate hikes. But I look around the world and I see the stock markets falling, the currency problems in Asia, the problems in Europe and the war in Ukraine. I wouldn’t be surprised if the world’s money flowed into the dollar for safety. Being the reserve currency, the US dollar is a safe haven.

That said, I remain positive on gold and silver over the long term. Bank of America too, and sees pullbacks as buying opportunities.

My bullish sentiment comes from the fact that the issue of monetary inflation has yet to be addressed. Most of us hold gold and silver as a way to bet against debt and protect our purchasing power when fiats weaken. Take Japan for example.

I warned and informed readers about the situation in Japan and the incredible disappearance of the Japanese yen. Where did the Japanese money go? I’m sure the Japanese are coming up against the US dollar as the USDJPY has hit levels not seen since 2002, but we see Japanese silver coming up against gold and silver. XAUJPY actually printed new all-time highs from the end of February.

For more info on this subject, I strongly recommend that you read my article on the price of gold in Japan. If a fiat currency near you does the same, then the metals are where you want to be. Few people watch the forex/currency markets, but as someone who trades them daily, they are very volatile.

Now let’s move on to the silver board.

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Let’s start with the weekly chart. Silver is down 2% to start the week. Not the best way to start the week. Since this is the weekly chart, the key will be how this current candle closes by the end of the trading week on Friday.

Note the bearing area I drew. $21.50 is a massive major support level that has been around for two years. Over the past 2 years, silver has bounced off this support zone 5 times. Regular readers will be familiar with this level of support as I have already discussed testing and bouncing from this level.

Purchasing this mount seems like a prudent idea. I’m sure many traders open long positions here. I just want to see signs of buying first. Ideally, at the end of the week, the weekly close of the candle has some kind of large wick indicating that the buyers have defended themselves.

TradingView Chart

If one wants to enter before the weekly close confirmation, I would bring it back to the daily chart. Note how in the past, the price of silver started at this support before reversing. We had several days of price maintenance above. That’s what I want to see in the future. I can’t just act with the candle that we have right now.

In summary, silver price is testing a huge and important support zone. I will be watching both the daily and weekly chart for technical signs to buy. The reverse can happen. The price of silver may fall below $21.50. Hopefully that’s not the case, but if it is, it points to higher yields and a higher US dollar.


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