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After coiling for several days inside a narrowing range, silver looks like it is finally ready to resolve the consolidation by breaking higher. I think a rally towards $30 is on the cards, with the potential to go much higher over time.
Precious metals found decent support on Thursday after the big US CPI print was quickly dismissed by the market, as both the dollar and yields on the 10-year Treasury note fell, on expectations that the Fed will still see the upsurge in prices as being temporary.
The drop in bond yields boosted the appetite for low and zero-yielding assets such as growth stocks in the technology sector and precious metals. These markets were supported further by a dovish European Central Bank. Christine Lagarde , the ECB President, said it's too early to discuss ending PEPP now, adding that the spread of virus mutations continues to be a source of downside risk. The central bank pledged to buy debt at a "significantly higher pace" than during the first months of the year.
The supply of freshly printed ECB money will undoubtedly find its way into other assets including precious metals and European stocks.
Meanwhile, from a technical point of view, silver’s daily chart is continuing to look constructive:
We have seen plenty of bearish-looking daily candles in recent days and the sellers had plenty of opportunities to push the silver prices lower. Yet, silver has repeatedly failed them, with the metal consistently finding support around the $27.50 area. Its refusal to go lower is one of the strongest indications that silver wants to go higher. Indeed, the metal’s desire to hold its own above the 21-day exponential moving average is a strong indication of a healthy bull trend.
What we need to see next from a bullish point of view is a clean breakout above recent resistance in the $28 area. If the metal holds its breakout above this level, then we may see a quick rally towards the next big level of resistance around $30, with an interim target being the liquidity above the May high at $28.76.
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