Silver – Breaking Through Key Resistance

After gold prices reached a new all-time high of USD 2,431, a sharp pullback between mid-and late-April created confusion and misjudgments even among leading analysts. Nevertheless, a strong recovery found its way back to the top. While gold achieved its first weekly close above USD 2,400 ever, silver has been breaking through its key resistance zone around USD 30.

Silver in US-Dollar, quarterly chart as of May 19th, 2024. Source: Tavi Costa

Silver in US-Dollar, quarterly chart as of May 19th, 2024. Source: Tavi Costa

Despite gold prices rising by USD 621 or 34.3% from the major low on October 6th, 2023, silver had largely remained in the shadow of gold’s strong performance. Hence, the typical exuberance in silver prices during the final stages of a rally in the precious metals sector has yet to manifest. However, a breakout above the resistance zone around USD 30, which has fended off every attack since August 2020, is now signaling a final surge for silver in the coming weeks.

Gold/Silver-ratio breaking out of its triangle consolidation

Gold/Silver-Ratio, weekly chart as of May 19th, 2024. Source: Midas Touch Consulting

Gold/Silver-Ratio, weekly chart as of May 19th, 2024. Source: Midas Touch Consulting

Since May 2nd, the gold/silver-ratio has dropped significantly from nearly 88 to below 77! This indicates that silver is outperforming gold. On the weekly chart, the gold/silver-ratio is currently sliding southward along the lower Bollinger Band. The only obstacle for the silver bulls had been the rising trend-line of the past four years. As the breakthrough has clearly occurred, the next targets are waiting in the range of 75 to 72, or in an extreme case, around 62 to 68.

Silver in US-Dollar – Weekly Chart

Silver in US-Dollar, weekly chart as of May 19th, 2024. Source: Midas Touch Consulting

Silver in US-Dollar, weekly chart as of May 19th, 2024. Source: Midas Touch Consulting

Four weeks ago, we discussed in detail the imminent breakout above USD 30. However, two sharp pullbacks in the gold market (from USD 2,431 to USD 2,325 and from USD 2,419 to USD 2,277) led to a reconsideration and the suspicion that the gold price might have already peaked in the rally that started back in October 2023. In the second half of April, silver prices also dropped significantly from USD 29.791 to USD 26.02, a decline of 12.65%.

Despite this pullback, however, silver bulls were undeterred, driving prices back up to USD 29.84 over the past two weeks. On Friday, silver has effortlessly surged past the critical USD 30 mark, reaching an intraday high of USD 31.59. If this breakout holds, sharp price increases up to the next resistance zone around USD 35 could happen rather quickly. The only downside is the overall overbought condition on the weekly chart, suggesting that the market might be overextended, and making a false breakout (bull trap) possible. Nevertheless, the final push for silver in this 7.5-month-old rally might only take one to five more weeks, for which the space at the stochastic oscillator would certainly still be sufficient.

Silver in US-Dollar – Daily Chart

Silver in US-Dollar, daily chart as of May 19th, 2024. Source: Midas Touch Consulting

Silver in US-Dollar, daily chart as of May 19th, 2024. Source: Midas Touch Consulting

We were a bit too optimistic four weeks ago. Only now does silver truly seem poised to sustainably break out above USD 30. The past five weeks appear to have been merely a healthy consolidation within an intact uptrend, like catching one’s breath before the finale. With prices closing the week around USD 31.50, the strong resistance zone is already broken. The next target now sits around USD 35ish. Above that the all-time high at USD 50 would be coming into play.

Conclusion: Silver – Breaking through key resistance

Gold closed last week at USD 2,414.71, slightly above the key psychological level of USD 2,400. This breakout should give the bulls new momentum and could make our original target of approximately USD 2,535 a reality in the coming weeks.

Silver has closed the week at USD 31,49, hence the strong resistance zone around USD 30 was overcome. After repeatedly challenging this level for four years, this breakout should unleash a lot of energy, potentially driving prices quickly up to USD 35. And if more market participants realize that silver is still far below its all-time high of USD 50 from 1980, while gold has tripled since then, a sharp spike up to USD 50 is not entirely impossible.

Silver sentiment getting too optimistic

Silver sentiment, as of May 17th, 2024. Source: Sentimentrader

Silver OPTIX sentiment, as of May 17th, 2024. Source: Sentimentrader

However, before drifting into fantasy, it is important to remember that precious metal rallies typically end with a final surge in silver. As well, this breakout comes rather late in the cycle which is already running since October 2023. Therefore, as silver goes into parabolic mode, it will likely mark the final chapter of the rally that began 7.5 months ago. Once the top is in place, not only a consolidation but rather a painful correction in precious metals should follow. Of course, this will not mean the end to the secular bull market but rather lay the foundation for much higher price in the longer term.

Another leap of gains

In summary, it seems that precious metal prices are set for another lap of gains, with gold aiming for around USD 2,535 and silver targeting USD 35, at least. In an extreme case, a final surge in the silver market could drive prices even higher. Following this, however, we expect a trend reversal and a healthy multi-month correction.

Analysis initially published on May 17th, 2024, by Translated into English and partially updated on May 19th, 2024.

More By This Author:

Gold – Consolidation Triangle Rather Suggests Continuation Of The Rally
Bitcoin – Potential Correction Despite ETFs And Halving
Gold – This Breakout Is Unambiguous

Disclaimer: All published information represents the opinion and analysis of Mr Florian Grummes & his partners, based on data available to him, at the time of writing. Mr. Grummes’s ...

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