Silver Could Be Heading to $50 - Watch These Levels for Clues

 | Apr 01, 2024 03:49AM ET

  • Gold surged to a fresh high this week, while silver also closed positively despite the US dollar strength.

  • Factors like inflation concerns and anticipated Fed rate cuts are bolstering precious metals, with silver potentially poised for a breakout.

  • Silver's consolidation near key support levels suggests it could initiate a significant upward move if it maintains stability around $24.50.

    • Gold closed at a fresh unchartered territory on Friday after rising more than 3% on the week, leading to a jump to a new record at the Asian open overnight.

    Silver also managed to post a positive close on the week, even as the US dollar eked out a third weekly gain against a basket of foreign currencies.

    Precious metals have been in strong demand in March, particularly gold, which has made record highs a few times recently.

    The yellow metal gained some $190 last month, while silver added just $2.29. But in percentage terms at least, silver hasn’t done too badly with a gain of just over 10% compared to just over 9% for gold.

    Still, silver remains miles away from its record highs and on that basis, heavily undervalued compared to gold. So, can silver play catch up and start heading higher more aggressively moving forward?

    h2 Why have precious metals been rallying?/h2

    Essentially because of years of high inflation chipping away at the value of fiat currencies, which is the same reason why Bitcoin has also been hitting record levels.

    Investors are also expecting the Fed to cut interest rates in June and potentially a few more times before the year is out, with several other major central banks like the ECB and BoE expected to follow a similar path.

    Rate futures have priced in a near 70% probability of a quarter-point rate cut from the Fed by June, according to the CME Fedwatch Tool.

    The odds of a cut increased after Fed Chairman Jerome Powell said on Friday that the recent US inflation data was "along the lines of what we would like to see.”

    On Friday, we also had in-line core PCE inflation data. It rose 0.4% month-over-month and 2.5% y/y in February. Core PCE climbed 0.3% m/m and 2.8% y/y, matching market expectations.

    What’s more, there is optimism about a recovery in Chinese demand, with data from the world’s second-largest economy showing improvement lately, and that trend continued with the latest PMI data over the weekend.

    A stronger Chinese economy means a stronger demand for precious metals, all else being equal.

    Another factor supporting gold has been momentum – traders like buying things that go up. But with gold now looking a little expensive, silver, at least in nominal terms, remains quite undervalued relative to the yellow metal.

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    Silver is looking increasingly bullish when you look at the charts, pointing to a potential breakout in the footsteps of gold.

    h2 Silver looks poised for major technical breakout/h2

    The poor man’s gold, silver, is yet to stage a similar breakout to gold. However, the grey metal is coiling for a potential breakout.

    Silver has remained in a consolidation phase since it staged a big surge during the peak of the pandemic in 2020, after a brief dip below the pivotal support level of $20.

    It managed to climb to $30 by 2021. However, since then, each attempt at a breakout has faltered. Nevertheless, it has managed to maintain above the critical breakout level of around the $20 mark over the long term, albeit with some deviations.

    A bullish trend line has emerged in more recent years, yet it has not managed to break the bearish trend thus far. Essentially, it has been consolidating its gains post-pandemic for nearly four years.