Silver continues to climb up. As a result of yesterday’s trading session, prices added another 2.5% and stopped right below the resistance level at 24. Last winter, silver prices could not consolidate above this resistance. Now the fundamental background for silver has improved, but according to the technical analysis, prices need a certain pullback.
From the low of March 10 to the current moment silver has already gained 20%, and its entire rise occurred without any substantial corrections. As a result, the RSI indicator now points to the strongest overbought since the summer of 2020, when huge amounts of liquidity were brought into the global financial system amid the pandemic, thereby causing the rally in many commodities.
The current situation in the financial market is quite similar to the events of three years ago. The problems of the banking system forced the Fed and other financial regulators to allocate billions of dollars as an emergency measure, the most part of which will be invested exactly in precious metals. Although silver as a safe-haven asset historically loses to gold, it might be used at least for diversification of investment portfolio.
The rate of Inflation is the factor that differs the current situation from the events of 2020. The pace of price growth still significantly exceeds central banks’ targets, which might prevent interest rates from declining at least for the upcoming months. Today we will see the PCE index data in the U.S. According to Credit Suisse analysts, the index will fall to 0.3% month-on-month, while inflation will stay the same at 4.7% level year-on-year.
If data on the price growth pace are worse than expected, along with technical overbought, it will be another important signal for the correction in silver prices. The first downside target is at 23.3.
The following trading strategy may be offered:
Sell silver in the range of 23.8–24. Take profit – 23.3. Stop loss – 24.3.
Traders may also use Trailing stop instead of fixed Stop loss at their discretion.