After gold prices reached a new all-time high of $2,431, a sharp pullback between mid-and late-April created confusion and misjudgments even among leading analysts. Nevertheless, a strong recovery found its way back to the top. While gold achieved its first weekly close above $2,400 ever, silver has been breaking through its key resistance zone around $30!
Silver in US-Dollar, quarterly chart as of May 19th, 2024. Source: Tavi Costa
Despite gold prices rising by $621 or 34.3% from the major low on October 6th, 2023, silver had largely remained in the shadow of gold’s strong performance. Hence, the typical exuberance in silver prices during the final stages of a rally in the precious metals sector has yet to manifest. However, a breakout above the resistance zone around $30, which has fended off every attack since August 2020, is now signaling a final surge for silver in the coming weeks.
Gold/Silver-ratio breaking out of its triangle consolidation
Gold/Silver-Ratio, weekly chart as of May 19th, 2024. Source: Midas Touch Consulting
Since May 2nd, the gold/silver-ratio has dropped significantly from nearly 88 to below 77! This indicates that silver is outperforming gold. On the weekly chart, the gold/silver-ratio is currently sliding southward along the lower Bollinger Band. The only obstacle for the silver bulls had been the rising trend-line of the past four years. As the breakthrough has clearly occurred, the next targets are waiting in the range of 75 to 72, or in an extreme case, around 62 to 68.
Silver in US-Dollar – Weekly Chart
Silver in US-Dollar, weekly chart as of May 19th, 2024. Source: Midas Touch Consulting
Four weeks ago, we discussed in detail the imminent breakout above $30. However, two sharp pullbacks in the gold market (from $2,431 to $2,325 and from $2,419 to $2,277) led to a reconsideration and the suspicion that the gold price might have already peaked in the rally that started back in October 2023. In the second half of April, silver prices also dropped significantly from $29.791 to $26.02, a decline of 12.65%.
Despite this pullback, however, silver bulls were undeterred, driving prices back up to $29.84 over the past two weeks. On Friday, silver has effortlessly surged past the critical $30 mark, reaching an intraday high of $31.59. If this breakout holds, sharp price increases up to the next resistance zone around $35 could happen rather quickly. The only downside is the overall overbought condition on the weekly chart, suggesting that the market might be overextended, and making a false breakout (bull trap) possible. Nevertheless, the final push for silver in this 7.5-month-old rally might only take one to five more weeks, for which the space at the stochastic oscillator would certainly still be sufficient.
Silver in US-Dollar – Daily Chart
Silver in US-Dollar, daily chart as of May 19th, 2024. Source: Midas Touch Consulting
We were a bit too optimistic four weeks ago. Only now does silver truly seem poised to sustainably break out above $30. The past five weeks appear to have been merely a healthy consolidation within an intact uptrend, like catching one’s breath before the finale. With prices closing the week around $31.50, the strong resistance zone is already broken. The next target now sits around $35-ish. Above that the all-time high at $50 would be coming into play.
Conclusion: Silver – Breaking through key resistance
Gold closed last week at $2,414.71, slightly above the key psychological level of $2,400. This breakout should give the bulls new momentum and could make our original target of approximately $2,535 a reality in the coming weeks.
Silver has closed the week at $31,49, hence the strong resistance zone around $30 was overcome. After repeatedly challenging this level for four years, this breakout should unleash a lot of energy, potentially driving prices quickly up to $35. And if more market participants realize that silver is still far below its all-time high of $50 from 1980, while gold has tripled since then, a sharp spike up to $50 is not entirely impossible.
Silver sentiment getting too optimistic
Silver OPTIX sentiment, as of May 17th, 2024. Source: Sentimentrader
However, before drifting into fantasy, it is important to remember that precious metal rallies typically end with a final surge in silver. As well, this breakout comes rather late in the cycle which is already running since October 2023. Therefore, as silver goes into parabolic mode, it will likely mark the final chapter of the rally that began 7.5 months ago. Once the top is in place, not only a consolidation but rather a painful correction in precious metals should follow. Of course, this will not mean the end to the secular bull market but rather lay the foundation for much higher price in the longer term.
Another leap of gains
In summary, it seems that precious metal prices are set for another lap of gains, with gold aiming for around $2,535 and silver targeting $35, at least. In an extreme case, a final surge in the silver market could drive prices even higher. Following this, however, we expect a trend reversal and a healthy multi-month correction.
Analysis initially published on May 17th, 2024, by www.gold.de. Translated into English and partially updated on May 19th, 2024.
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Disclosure: This article and the content are for informational purposes only and do not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. The views, thoughts, and opinions expressed here are the authors alone. They do not necessarily reflect or represent the views and opinions of Midas Touch Consulting.
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