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Highlights:

  • Silver prices continue to lag behind gold
  • Symmetrical triangle developing could soon lead to powerful move
  • Size of formation dictates a move below $13 or above $15 following a breakout

Silver prices continue to lag materially behind gold, with the past month of price action wedging silver into a symmetrical triangle. The lag in performance between the two precious metals is due to gold’s standard of being a safe haven asset during times of market distress – Of which we have seen plenty lately.

It will be interesting to see how gold reacts on indications of short-term stabilization in global financial markets, when in fact they do. Can it hold or will it fold? How will this impact the future of silver trade given the typically trustworthy correlation to one another? Questions which may not be answered in apparent fashion.

Enter the before mentioned triangle pattern.

With a little more time the sequence of contracting price swings will work its way towards a narrowed apex. It’s currently testing the bottom-side of the pattern. The squeeze in volatility is viewed as an indication of a pending breakout; high volatility is followed by low volatility, and vice versa.

Silver Daily: Jul '15 - Present

Silver Prices Coiling, Sizable Move In the Making

So, while we may not be able to figure out exactly what will drive the next move in silver (sustained dollar move is a good candidate), watching how price action unfolds in the days to follow may lend strong clues as to what the next short-term trend in silver will be.

It is not imperative to fully understand what is behind a price move, sometimes all you need to know is that there are simply more buyers than sellers, and vice versa.

The height of the symmetrically shaped pattern dictates a measured move of approximately $1. This means we are looking for potential trade sub-$13 or over $15. A little more time before reaching the apex, or point of breakout, will make for a better looking pattern.

Should the triangle resolve to the down-side, acting as a continuation pattern of the sell-off which began in November, we will be cognizant of the lower trend-lines which have arrested declines in the past. One runs back to 2014, the other 2013. The support zone created by these two lines is roughly between $12.50 and $13.50.

On the flip-side, should silver take a ride higher out of the contracting formation above the $14.40/50 area there is room to run towards a long-term trend-line extending back to 2013 over the $15 mark.

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--- Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX or email him directly at instructor@dailyfx.com