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.
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.
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.