Since its rally on Tuesday, silver has come off its most recent high, below $30 an ounce, forming a triangle. This is a clear correction before the market decides what to do next, but it needs a directional break.
Jonathan Butler, a precious metals analyst and head of business development at Mitsubishi, has noted that silver has outperformed gold significantly in the past few months, but remains relatively cheap by historical standards. The gold/silver ratio now hovers around 72.5, compared with the historical average of about 59.
As inflation continues to rise and real interest rates turn negative, silver will rise further. “Silver has $20 to go before it reaches a nominal 2011 high,” he says.
Christopher Lewis, an analyst at FXEMPIRE, agrees. He thinks silver still has a lot of support around $26 and the 50-day moving average is now heading for $25 an ounce. While the idea of buying silver on dips looks plausible, volatility will remain a major concern.
Technically, the red line above $26 an ounce has been tested at least four times, which shows its importance. $28 / oz will be a potential resistance zone extending to $29, while $30 / oz will be an important psychological resistance level. As soon as it crosses $30 an ounce, silver will start to rise sharply. Based on historical data, silver has a long-term bias toward $50 an ounce.
In addition, the relative strength index has been in oversold territory but is now moving toward the midpoint. On the long – term chart, prices are still in a clear upward trend.