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

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Written By: Elliott Laybourne
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    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.

Zerohedge

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.

Silver price weekly chart

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Written By: Elliott Laybourne

Elliott Laybourne is an accomplished Hedge Fund sales and Investment bank trading specialist. Elliott also started a successful Base Metals Brokerage business in partnership with ABN AMRO clearing bank. He worked on the open outcry trading floors at the London International Financial Futures Exchange 'LIFFE' and the London Metal Exchange 'LME.' He also provided research and execution services for Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and Pennsylvania State Public School Employees Retirement System, as amongst others. Today, he focuses on providing trading consultancy and business development services for family office and brokerage clientele.

Published by
Written By: Elliott Laybourne