Silver is settling below $39.50 following a robust three-day climb, marking a 3.33% increase for the week. The metal reached a 14-year peak of $39.48, with the RSI near 73 signalling strong upward momentum, although overbought conditions may restrict further gains soon.
On Wednesday, Silver paused its ascent below $39.50, with the US Dollar steady after a US-Japan trade deal influenced market sentiment. Silver has sustained near 14-year highs, benefitting from a weaker US Dollar throughout this rally.
The daily chart shows Silver moving within a rising channel since April, maintaining above the rising EMAs. The RSI remains overbought, yet no reversal signs are evident, while the ADX at 23.60 indicates strengthening underlying trends.
The focus is on the $40.00 target, with potential moves towards $42.00 or $43.00 if conditions favour. Support sits around $38.45-$38.10, with further support at the 21-day EMA near $37.59, and the 50-day EMA at $36.20.
Silver, used as a value store, faces price changes from geopolitical concerns, interest rates, and USD performance. Industrial demand and Gold’s prices also influence Silver’s market dynamics.
Given the strong upward momentum, we see the current environment as favorable for maintaining a bullish stance. We would consider buying call options with strike prices targeting the $40.00 psychological barrier, as the underlying trend remains strong. Recent data from the CME Group shows open interest in silver futures has been rising with the price, confirming that new money is entering the market and supporting the rally.
However, the overbought signal from the technical indicator should not be ignored, as it suggests a short-term pullback is highly probable. The latest U.S. Consumer Price Index (CPI) report came in cooler than expected at 3.4%, which has weakened the dollar and fueled bets on a Federal Reserve rate cut later this year. For traders with existing long positions, this could be a good time to buy protective put options to hedge against a temporary drop toward the initial support levels.
We remember the explosive rally to nearly $50 an ounce in 2011, which was also preceded by extreme overbought readings before a dramatic reversal. This historical precedent suggests that while the path of least resistance is upward toward the higher price targets, volatility is likely to increase significantly. Therefore, using strategies with defined risk, such as bull call spreads, is a prudent way to capture more upside while limiting potential losses from a sharp downturn.
The metal’s role as an industrial commodity provides a strong demand floor that traders must factor in. Global industrial demand for silver is forecast by The Silver Institute to reach a new high of 711 million ounces in 2024, driven heavily by its use in solar panels and electric vehicles. This robust industrial consumption, separate from investment demand, reinforces the long-term bullish case even if a technical consolidation occurs in the near term.
