Silver price analysis: Levels to watch as it breaks out

Silver price has been up by close to 35% year-to-date as it continues to benefit from its dual role of being a conventional safe haven and industrial metal. Notably, geopolitical and economic uncertainties have its safe haven demand secured. At the same time, its industrial use has surged as the world decarbonizes and digitalizes. 

A look at the technicals point to a potential breakout to $40 an ounce. However, it may range-bound in the immediate term as the bulls await a catalyst that will yield ample bullish momentum. At the time of press, silver price was trading at $38.88 after rebounding from the previous session’s intraday low of $38.02.

Silver price preps for breakout

Late last week, silver price hit a one-month high as the market reacted to Jerome Powell’s hint at a September rate cut. Ordinarily, an environment of lower interest rates tends to favor non-yielding assets.

However, investors remain cautious as the Fed Chair acknowledges conflicting signals from the US labor market and inflation levels. Inflation remains above the central bank’s 2% target while recent data have signaled a slowing job market. 

Indeed, the status quo has deepened the division within the FOMC. Some officials are more keen on the inflation risks while others are more concerned with the weakening labor market. These uncertainties, coupled with concerns over the Fed’s independence have capped silver price gains.  

At the same time, the rate cut expectations have bolstered a risk-on mood; easing the demand for precious metals and other safe-haven assets. The fear & greed index from last week’s neutral level of 55 to a greed level of 63. This is also higher than the previous session’s greed of 62. 

Even with the uncertainties, silver price continues to benefit from the world’s intensified efforts to digitalize and decarbonize. It is one of the aspects that has led the metal to outperform its lustrous cousin, gold. Compared to its 35% rallying year-to-date, gold has been up by about 29%. A look at both the fundamentals and technicals point to a potential silver price breakout in the short-to-medium term. 

Silver price technical analysis

Silver price has been in consolidation mode since the start of the week as the bulls gather enough momentum for a breakout. Even after easing from the one-month high it hit late last week, the precious metal has remained within the months-long bullish channel. Besides, it continues to trade above the short-term 25-day EMA and the medium-term 50-day EMA. 

In the immediate term, the bulls will need to attract enough buyers to break the resistance at $39. On the lower side, I expect the support zone along the 25-day EMA at $38 to remain steady, at least in the short term. 

Heightened bullish momentum may activate the upper resistance level of $39.50 as the market builds up a breakout to $40. Indeed, the higher highs and higher lows recorded since early April substantiate this thesis.