Silver just hit a 13-year high, breaking above a key resistance level that could ignite a major bull run. Some metals analysts now say a rally to $40 isn’t a long shot, but a matter of time. So, are the odds finally shifting in favor of the bulls?
And, more importantly, is now the time to capitalize on silver’s breakout?
To answer, let’s break down the key technical levels and explore the fundamental factors that may (or may not) fuel silver’s next major move.
Gold vs. Silver: A Look at Intermarket Momentum
In the StockCharts Market Summary, the Intermarket Analysis panel highlights various commodities and indexes. You’ll notice that SPDR Gold Shares (GLD) is leading the group with the largest positive three-month price change and StockCharts Technical Rank (SCTR) score.
FIGURE 1. MARKET SUMMARY INTERMARKET ANALYSIS PANEL. Gold is significantly outperforming other commodities.
While silver is missing from this panel, the intermarket analysis chart to the right of the panel, which plots a one-year chart of intermarket performance, allows you to add silver to the group.
FIGURE 2. ONE-YEAR CHART LAYING OUT THE INTERMARKET ANALYSIS COMPONENTS. iShares Silver Trust (SLV) (color-coded gray) and its latest intermarket performance reading is highlighted by the magenta box.
Is Silver Undervalued? Understanding the Gold-to-Silver Ratio
Note the wide performance gap between GLD and SLV. Let’s look at a chart illustrating the gold-silver ratio ($GOLD:$SILVER).
FIGURE 3. 15-YEAR CHART OF GOLD-TO-SILVER RATIO. The ratio is above both averages, suggesting that silver is undervalued.
Take a look at the blue and green bands. Both represent the common gold-to-silver ratio levels that many, if not most, analysts use.
- The blue band (60:1 to 65:1) reflects the long-term post-1971 average.
- The green band (70:1 to 75:1) reflects the 10-year modern average.
When the ratio is above these bands, silver is typically undervalued relative to gold. This can signal three possible outcomes:
- Silver rises while gold declines.
- Both rise, but silver outpaces gold.
- Both fall, but silver falls less.
The key question now: If silver is undervalued, does the technical setup support an actionable bullish resolution?
SLV Breaks Out: Key Support and Resistance Levels to Watch
In the daily chart below, SLV recently broke above key resistance at $31.75, exiting a wide trading range that stretched down to $26.25. The Quadrant Lines symmetrically divide the entire zone, providing more clarity to the trading volume and price behavior.
FIGURE 4. DAILY CHART OF SLV. Support levels are highlighted within the four quadrants dividing SLV’s 8-month trading range.
Here are a few key insights to consider:
- The Stochastic Oscillator is reading “overbought,” suggesting that a pullback is likely in the coming sessions.
- Buying pressure is stronger than at any point over the past year, according to the Chaikin Money Flow (CMF), suggesting that SLV, even in the case of a pullback, may have enough volume-driven momentum to drive prices higher.
- The first quadrant, shaded green, marks the breakout level and top of the eight-month trading range.
- The second quadrant, shaded yellow, marks the highest concentration of trading activity and various levels of support and resistance.
- The third quadrant, shaded red, marks another level of support before the bottom of the range, which also marks the lowest support level over the last eight months.
If SLV pulls back but investor conviction remains strong, a bounce is likely within the first two quadrants, particularly the second (yellow) quadrant. However, if SLV drops below the second quadrant and enters the third (shaded red), it signals weakening sentiment and suggests the breakout has failed, pulling SLV back into the trading range that has dominated over the past eight months.
Will Silver Hit $40? Forecasts and Fundamental Tailwinds
Some analysts are expecting $SILVER to rise to around $40 an ounce. SLV’s price equivalence is around $37–$38 per share.
From a technical perspective, historical resistance levels are often target zones for those looking to take profit or unload positions. Here are the historical resistance levels to watch in SLV (pull up a 20-year chart of SLV to see these levels):
- $36.44 – the February 2012 high
- $42.78 – the August 2011 high
- $48.35 – the April 2011 high
These are the levels reached since the last major silver boom in 2011. SLV may (or may not) reach these levels, but it’s important to see the proverbial “roof” before you hit it.
What This Means for SLV Traders Going Forward
With silver breaking out and momentum accelerating, SLV could be setting up for a sustained move. So watch the depth of the pullback, if it happens. You will want to see a bounce above $29 (the lower part of the second quadrant); movement below that is not favorable to the bulls. And, last but not least, remember things can change quickly as geopolitical developments and economic news unfold.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
