The price of silver gyrated last week, exhibiting more volatility than gold.
It was a story of three steps forward, one step back, as the metal reached back above the $16 mark but was unable to hold that level.
Like gold, silver prices looked like they had finished consolidating before the end of last week.
Bouts of selling are quickly met with commensurate buying as bargain hunters step up with fresh capital.
As well, multiple technical price clues are coming together to point silver in one direction: much higher.
The good news is that the 13 week cycle appears to have entered an up phase. And it did so before materially breaking the previous low. The bad news is that 9-12 month cycle indicators are showing no signs of strength early in this up phase. Here’s what it means, and a suggested trade.
That doesn’t mean a move significantly higher is imminent, but those indicators do suggest the price of silver could break out in the near term.
Here’s what I mean…
How the Price of Silver Is Trending Now
Like I said, silver had a volatile week, regaining $16, even if only momentarily.
Silver’s move really got started on Tuesday, Feb. 19, when it opened for New York trading at $15.82, then ripped higher to $16 by noon, finally closing at $15.96. That same day the DXY reached above 97 in early trading but cascaded to below 96.5 just after noon, helping silver power higher in the process.
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On Wednesday, as the dollar stayed muted with the DXY dropping to 96.3 by 1 p.m., silver took advantage and pursued another leg up to reach $16.15 just after 12 p.m. Some traders took profits, pulling silver back to close at $16.02.
Thursday’s action was decidedly weaker, with silver opening at $15.90 in New York, then gradually trailing off to reach $15.78 by the close. For its part, the dollar found its footing, with the DXY regaining 96.6 at 5 p.m.
Here are the DXY’s moves for the past five trading days.
As silver observers prepared to head into the weekend on Friday, silver opened a bit higher at $15.80 as the DXY trended lower on balance. To close the week, silver inched its way to $15.90.
Then on Monday, silver remained pretty muted, with the DXY floating around 96.5. The metal was capped at $15.96 on the upside, and by midday was holding the $15.90 level.
Now, here are the technical factors that look extremely bullish for the price of silver heading into March…
Where I Expect the Price of Silver to Trade Next
The dollar’s action doesn’t seem to be providing much in the way of clues on its near term direction.
Right now, it’s still drifting within a range of 94.5 to 97.5, holding near 96.5 currently, and it’s still above both its 50-day and 200-day moving averages.
For now at least, I’ll assume the dollar is in consolidation or even bull mode. But as I detailed last week, that could still be positive for silver, as we’ve seen other such periods in the past.
Now, let’s look at silver’s price action more closely.
The metal’s price has clearly been trending upward since early November. The “golden cross” (the 50-day moving average crossing above the 200-day moving average) continues higher. Silver also remains above both its 50-day and 200-day moving averages.
Silver’s been forming a series of higher lows and higher highs, which is a classic sign of bull market action. The crucial $16 level still needs to be conquered decisively, and then it’s likely to hold as a new floor. From there, $16.25 is my next target, as it’s proven to be a solid floor until last June.
Silver stocks have been performing well and are set to establish their own “golden cross.”
That looks likely to happen over the next week, providing another bullish element in silver’s favor.
And if we look at the gold-to-silver ratio, it remains historically high. With decent odds, the ratio will drop as it reverts to its mean, and silver should benefit in this positive environment for both metals.
Consider the last three times this ratio has been above 80 and then mean-reverted. That happened with rallies in 1993-1994, 2003-2004, and again in 2008-2009. Silver’s returns were an impressive 50%, 27%, and 82% within a year.
Meanwhile, my silver picks have held up well.
The SLV January 2021 calls with a strike price of $15 are off a slight 2.7% since recommended. Given their long term to expiration, they remain a buy on dips.
The 2x leveraged ProShares Ultra Silver ETF (NYSE: AGQ) is now up 2.9% and is a buy on dips.
Finally, the Global X Silver Miners ETF (NYSE: SIL) has gained 10% since I said to buy in mid-January. SIL is a buy on dips.
At this point, I’m waiting for silver to close above $16 and make that its new floor. In the meantime, most of the action will be white noise.
From there, my targets will be $16.25, then $16.50 once the silver rally is clearly back on track.
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