Following our recent article last month in which we outlined metals were set to rebound, Gold and Silver did indeed rally over the following weeks. Gold rallied 6% and Silver 9.5% before spending most of June pulling back, as we have been outlining in our analysis to clients.
In a note to clients last week, I summarized my perspective on Silver as follows:
“The market looks set to continue consolidating which I think can still take us another week or so before it completes. Technical studies are now approaching oversold levels and my preference is to see silver hold above the 2017 uptrend [dashed black line] which currently resides at $16.30 – $16.40, but ultimately as long as it stays above the May low of $16.08, we are setting up the potential for what could be a strong rally over the coming months.”
Since then both Gold and Silver look as if they may have formed the bottoms we were looking for. Silver bottomed where I had preferred it would, as did Gold holding above its 200 day moving average, with both closing the week positively off the lows struck. The beginning of this week saw an unexpected sell off within minutes of the European open, with Gold getting hit with a huge spike in volume. Gold moved 1.7% lower from $1,258 and Silver moved with it dropping 3% from $16.70, all in the blink of an eye before recovering strongly.
Many traders have since offered different analysis with some blaming it on a mistake, others on the possibility that someone tried to spoof the market and flush weak hands out of the market. Whatever the real reason behind yesterdays event, the markets recovered very quickly as traders bought the dip and ultimately, gold and silver stayed above their lows posted in May, so at this stage, our long term perspective has not changed for a movement higher over the coming months.
Daily Weekly Chart 27-June-2017
As you can see on the attached weekly chart, silver has not only stayed above the May low [horizontal black line], it has additionally done what I preferred to see which was for it to hold above the upward trendline held since December 2015. First upside target is the descending trendline in place since the 2016 high which currently comes in at the $18.00 – $18.20 region.
As you can see, it is possible a silver rally could stop at $18.00 – $18.20 and need to come back down once more. While I do not see this as a high probability at this time, I will be watching how we rally out from the lows to be more certain.
If as I expect could be the case, silver was to break out above the descending trendline, I see the potential for a strong rally not only taking us up to the August 2016 highs [horizontal red line], but beyond towards the $23 region [horizontal blue line].