Trading Ideas For Silver: $20 Might Be The Next Price To Look At

Published 12-06-2020, 10:55 am
Updated 09-07-2023, 04:02 pm

Silver Futures prices have rallied by about 50% since its mid-March lows. The recovery in the metal is leading it back to its last high of 2020, touched in February. The metal has seen a wonderful recovery from the lows of below $12 per ounce on 18th March to above $18 per ounce. So, at this point, the question which arises is whether there is still gas left in the tank?

As we mentioned earlier, we have seen almost 50% of the rally in Silver. In fact, in May if we look at the performance in the futures market, we saw the largest percentage change in the price of Silver in almost 10 years. It was really a big month for Silver.

Here we can draw reference to Gold-Silver ratio, i.e. the ratio shows how many ounces of silver are needed to buy an ounce of Gold. Historically it has traded around the 60 mark. However, in March, this ratio went up to about 125 due to the fall in Silver prices. In recent days, it went back to 95 but is still well above its historical average.

In our analysis, another factor that has helped in driving the price of Silver is the re-opening of economies all around the world. While it would be too far-fetched to hope for things to get back to normal, but at least economies have started functioning due to easing in lockdown. With this, we can see industrial demand starting to pick up. Of course, there could be a shortage on the supply side because plenty of mines had been shut down due to the COVID-19. This would only serve to increase in the Silver prices.

Weakness in the US Dollar is also helping the prices of Silver. The dollar index has slipped in recent weeks to its lowest levels of the past ten weeks. As we know, the prices of Silver have an inverse relation with the US Dollar. If we see the dollar index chart, it is trending around $97.60, which is low which the index touched around two months back. So definitely, a weak dollar is playing its part to strengthen Silver prices.
We feel that momentum is still strong, and the prices can push a little higher.

 Silver support and resistance levels

So the entire price range north of $18 up until $20 could be the ceiling for the Silver prices in the short-to-medium term. Looking at support levels, we have got some good support on the downside if we see the prices weakening. We believe that the strategy for Silver should be more inclined to buy on a dip at the moment.

The first support level for Silver is placed below $17 psychologically. Although we can see a good bullish trend, which is inching up these lows on the Silver chart, there is still some hesitation and doubt on the upside as to how much more upside is left for Silver. A reason for this skepticism is because we’re gradually approaching the highs for the year. If we look on charts, it was at $18.85 in early January and then prices fell from the cliff of $18.94. If we are able to cross that price, then we can consider targeting $20. We have 21-SMA on chart and prices are still well above the average.

Silver daily price chart

Looking at RSI, it went into the overbought zone already in the middle of May. We have bearish divergence on RSI, where the price of silver has pushed to the high and the RSI gave the signal of being overbought. Then again, prices made a new high, but RSI made a lower high. So, this can be a suggestion that perhaps the strength is starting to run out of steam and we will see some sort of correction. 

In our anticipation, it’s easy to get carried away when we have a run-away market. We had a great month in May for the price of Silver and maybe we will see it repeated again in June as well. However, in the short term, it seems little overheated. So, taking advantage of weaknesses will be a good idea. The trend is still up, and we would suggest being a buyer on the correction.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2025 - Fusion Media Limited. All Rights Reserved.