SILVER : Face Resistance

(Tue, 13 Oct 2020). Silver has posted a sizeable rebound off the September low which corresponds with the period of decline in the US dollar index – a proxy for the strength of the US dollar. A lower dollar price for silver often leads to an increase in the assets price as the lower dollar price makes the metal cheaper to buy from an FX perspective for international buyers.

It warrants mentioning that price trends in silver are closely related to those of gold as they tend to respond to similar drivers of price, generally: demand and supply, (low) real interest rates, inflation expectations, speculation, and safe haven appeal which is linked to the state of the global economy.

In the current low interest rate (low yield) environment, these precious metals can become more attractive. As central banks around the world consider various stimulus packages and, as is the case with the Bank of England (BoE), central banks may even consider adopting negative interest rate policy (NIRP) in an attempt to spark economic growth.

STAY ABREAST OF THE LATEST CENTRAL BANK DEVELOPMENTS

Precious metals offer no yield (only price appreciation) therefore, in a low or zero interest rate environment, market participants start to consider holding precious metals like gold and silver more seriously.

KEY TECHNICAL LEVELS FOR SILVER

Considering the fundamentals backing higher silver prices for most of 2020 thus far, there do remain a number of challenges to further upside, at least in the near term, which opens the door to a potential move lower. Resistance can be observed in the weekly silver chart where the current weekly bar, highlighted in blue - had approached the 23.6% Fibonacci level (drawn from the March low to the August high) and has held since.

Scaling into the daily chart – an analysis technique called multiple time frame analysis – there is a clear area of confluence captured around the blue circle on the price chart. The area of confluence acts as near term resistance and is comprised of the descending trendline, the 23.6% Fib and the upper trendline of the ascending channel.

As long as price is contained below the area of confluence, this opens up the possibility of a lower move towards the lower bound of the channel. The nearest level of support is 2440 followed by 2373, 2286 and lastly, the low of 2165 although this remains a fair distance away.

In the event price breaks and closes above confluence resistance, the next level of resistance is the 2630 – 2650 zone followed by the 2758 and 2890 levels.

DISCLAIMER ON

GFS ASIA TEAM

• 0
• 0
• just now
• 0