Silver outlook: a return to the 2011 high tests $49 to $50 support

A return to the 2011 high has silver testing key support at $49 to $50, so the silver price forecast now depends on whether the metal can bounce from there. Silver is continuing to struggle in this area, which was previously both support and resistance. With no bounce yet, the near-term silver forecast hangs in the balance, although I am still expecting an eventual recovery from here.

 

• Silver is testing key support at $49 to $50, the area of its 2011 high
• The longer-term forecast remains bullish on demand, but hawkish central banks could cap it near term
• The near-term forecast hangs in the balance, with an eventual bounce still expected

 

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Silver demand keeps the longer-term forecast bullish

 

The longer-term silver forecast remains bullish, as demand for the metal is expected to strengthen with its increasing usage. Silver is used in solar energy and powers smartphones, laptops, AI data centres, electric vehicles and many other areas.

 

US midterms could be negative for the dollar but not for rates

 

Tuesday's US midterm elections could have significant implications for markets. A split or Democrat-controlled Congress would make it harder for President Donald Trump to push through his domestic and foreign-policy agenda, and a Democratic sweep in particular could raise concerns around government shutdowns and debt-ceiling negotiations.

 

On the face of it, a result that limits the administration's room for manoeuvre would be negative for the dollar and therefore potentially supportive for silver. However, the market reaction may depend on how the outcome interacts with the outlook for US interest rates, and for now the monetary-policy backdrop remains a drag on precious metals.

 

Hawkish central banks could cap silver in the near term

 

The Federal Reserve left rates unchanged last week, but the prospect of a December hike remains firmly on the table. Third-quarter GDP expanded at a 3.4% annualised pace and core PCE inflation rose 0.3% month on month in September, which shows the US economy has continued to prove resilient.

 

Rate-hike expectations are building elsewhere too, with the Bank of England expected to raise rates to 4% on Thursday as higher energy prices add to inflationary pressure. A strong US non-farm payrolls report on Friday would therefore reinforce expectations for another Fed hike and could put further pressure on silver through higher yields and a firmer dollar.

 

Technical silver forecast and key levels to watch

 

From a technical analysis point of view, silver has returned all the way back to the log-term support area around $50 (give or take a few dollars), and so I am expecting to see an eventual bounce from there.

 

 

It remains a question of wait and see, and the next couple of days should show whether that changes.

 

The weekly silver chart shows the importance of this $49-$50 region:

 

 

As can be seen, the 2011 high also comes into focus around the abovementioned zone, making it a key long-term level of support.

 

Frequently Asked Questions

What would make the technical picture for silver more constructive?

If and when a bullish reversal candlestick forms around current areas, things will start to look a little bit more constructive. 

 

What happened the last time silver tested this zone?

Silver tested the $50 area at the back end of last year, hesitating there for a while before taking off. The zone had been resistance and the high from 2011.

 

Is silver already bouncing from the $49 to $50 support zone?

Well, no not yet. There has been very limited upside from this area of support so far. But could that change? That's what I am watching right now.

 

-- Written by Fawad Razaqzada, Market Analyst | Follow Fawad on Twitter @Trader_F_R