Has Silver just Broken the Monthly Downtrend?

Silver has largely been one of the “forgotten” precious metals over the past year four years despite an increasingly scarce supply and rising industrial demand. Subsequently, the commodity has continued to trend steadily lower despite a rising disconnect between the physical and derivative prices. However, that may have just changed given that the past week has seen Silver rise sharply and break through the long run monthly bearish channel.

A technical review of the commodity is therefore salient given that a strong reversal and breakout could be afoot. It is clear from viewing the weekly chart that there has been a persistent, and relatively tight, long term bearish channel that has seen Silver decline to its current levels. This pattern started in 2011 and has been a force to be reckoned with up until a week ago when the commodity convincingly challenged and broke through the constraint.

Further pointing to a case for a bullish move is the recent challenge to the 60 and 100-Week EMA’s, which price action decisively conquered over the past week. In particular, the 60EMA has largely been capping any upside gains and acting as dynamic resistance for the metal. Subsequently, the breach of these key moving averages is a very bullish sign for Silver in the medium term.

However, on a short term basis we may see a pullback from the current high given that the RSI oscillator is strongly oversold on both the daily and weekly time frames. Subsequently, we are likely to see a short term corrective movement back towards $16.831 before the commodity recommences its bullish push to challenge resistance at $18.476.

Also, from a fundamental point of view, there are plenty of reasons to be positive about Silver’s future prospects. Physical demand for the metal has been steadily increasing since 2010, in line with the rise of smart phones and personal electronic devices. In contrast silver supply has remained relatively static, even posting net deficits when compared to demand in both 2013 and 2014. In addition, silver based derivatives have exploded in popularity which has also coincided with the divergence between paper and physical silver prices.

Subsequently, demand for the commodity is likely to only increase in the ensuing period and we may be at an inflection point that sees some significant upward pressure on the precious metal. Ultimately, given that technical indicators are currently largely bullish, and price action has broken through the monthly bear trend, that point may be now.