Silver price in danger of 20% drop on worst weekly close in 3 months

Summary:

The Silver price finished last week, nudging against a major support level. So could XAGUSD be on the cusp of a significant shake-out?

The Silver price finished last week, nudging against a major support level. So could XAGUSD be on the cusp of a significant shake-out?

Despite inflation expectations hitting a 13 year high last week, precious metals failed to gain positive traction. Silver led the way lower, closing out the five-day performance with a 1.60% decline.

Although hardly a collapse, the price has tracked back to the support of a trendline that has been in place for a year.

If precious metals are an effective hedge against inflation, the NY Consumer survey and UMich data realised Friday should have sent the Silver price soaring.

The data, which showed one-year inflation expectations are the highest in over a decade, had the opposite effect.

The subsequent sell-off has edged the Silver price perilously close to breaking down. Next week, how XAGUSD performs is key in deciding whether the price realises the bull’s dream of $30+ Silver any time soon.

XAGUSD technical analysis

The weekly chart highlights a strong uptrend from July 2020 that has supported the price. The trend, which is visible at $25.60, has been tested in 3 out-of-the-last 4 weeks. Although, in the previous attempts, the price recovered into the weekly close and averted the immediate danger. However, last week, the price finished the session at a weekly low. Furthermore, a small decline next week would force XAGUSD beneath the threshold.

In this event, a logical target becomes $21.60. The 100-day moving average at $21.62, the September 2020 low at $21.66, and the November $21.89 low all reinforce this ‘must-hold- support level.

I see this as a low probability occurrence. However, the technicals suggest there is at least some chance of it happening, should the market succumb to a much broader phase of liquidation.

A positive close next week will relieve the immediate pressure. Although until XAGUSD clears the robust resistance band between $28.50 and $30.00, its inflation hedge credentials will remain in question.