Silver, the ever-vital precious metal often used as a hedge in volatile markets, is currently grappling with the turbulence around the $22.00 level, which is close to its lowest point in over three months. Although the metal has made a modest recovery from the low point it touched on this Friday, it appears to have broken its four-day losing streak. However, the market is not showing signs of robust follow-through buying, with spot prices floating below the mid-$22.00s. This level hovers around the 61.8% Fibonacci retracement level of the rally that took place from March to May, as European trading hours approach.
From a technical standpoint, the downward trend that commenced and held firm below the significant 200-day Simple Moving Average (SMA) during the previous night was viewed as a new trigger for bearish investors. This came on the back of recent unsuccessful attempts to rally near the 50-day SMA. Furthermore, oscillators on the daily chart remain entrenched in negative territory and are still a long way from entering the oversold zone. These factors collectively bolster the bearish forecast for the XAG/USD and indicate the likelihood of further depreciation.
If there is continued selling below the $22.10 area, which represents the monthly low, it will reinforce the negative bias and drag the XAG/USD towards the $21.70-$21.65 support zone. This downward trend could extend further towards the $21.25 intermediate support on its way to the $21.00 round figure. The next crucial support lies near the $20.50 area. If this level is breached, bearish traders might set their sights on challenging the Year-To-Date (YTD) low – a level just below the significant $20.00 psychological mark reached in March.
Conversely, if there’s a substantial recovery beyond the $23.45 area (200-day SMA), it is likely to draw in fresh sellers near the $23.70 zone, and likely remain capped near the $23.00 round-figure mark. This level coincides with the 50% Fibonacci level. If it is decisively cleared, a short-covering rally might ensue, lifting the XAG/USD to the $23.30-$23.35 hurdle on its way to the 38.2% Fibonacci level, situated around the $23.70-$23.75 zone. This level should now act as a critical juncture for short-term traders.
In the South African context, these fluctuations in silver prices could have significant implications for investors. A depreciating silver market may create potential buying opportunities for long-term investors, particularly those who see value in precious metals as a store of wealth. On the flip side, traders looking for short-term gains may need to tread carefully given the bearish outlook. As ever, the rapidly evolving global economic environment continues to present a complex backdrop against which South African investors must navigate.