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What’s inside:

  • Silver prices gaining some strength versus dollar, but it may not matter
  • Stiff resistance up to ~18 is proving difficult for the metal
  • A triangle is still developing, waiting on the break

The last time we discussed silver prices, on Friday, we took a look at the inverse correlation between the metal and the dollar. This is what we had to say:

“The growing ‘strength’ in precious metals versus the dollar could morph into a rally should we see the dollar decline materially, or further dollar strength could undermine silver again and send it lower. Or, perhaps something altogether different.”

The US Dollar Index (DXY) has risen around 2% since 10/6 when silver stopped its decline from over 20, and during that time the metal has floated higher off support at 17.11. The dollar as of yesterday found sellers, putting in a key reversal bar. We may be on the verge of seeing a meaningful pullback develop, and if one does, can precious metals find a bid? Perhaps, perhaps not. As we said on Friday “something altogether different” could take shape. Meaning: The correlation between the two may not be very useful for purposes of determining the direction in silver.

In any event, whether the relationship between the dollar and precious metals becomes clear again or not, silver has its work cut out for it before it can trade above the upper end of resistance around 18. Silver is trading above the lower parallel running back to July, but horizontal resistance extending back to May 2015 and the underside of the broken January trend-line remain in the way, and continue to present as obstacles to overcome before momentum can carry silver higher.

With little happening, the triangle we pointed out the other day continues to develop. The contraction in price action is pointing towards a move to unfold soon. We will need to wait for the break before running with either side of the tape. A break lower will be in line with the path of least resistance and quickly put pressure on 17.11, where a break below this key level would open the door up for losses towards the 16 area. A break higher will likely prove difficult until silver can trade above resistance. In the event it does, we would look to the 8/29 low at 18.40 as the next level to achieve.

Silver: Daily

Silver Price Action Contraction to Lead to a Move Soon

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---Written by Paul Robinson, Market Analyst

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