Silver Hits a Key Support Zone and Gets Ready To Rally

Key Points:

• Silver reaches key support zone.

• RSI Oscillator nearing over sold territory.

• Watch for a move towards the $18.62 upside target in the week ahead.

Silver has demonstrated a relatively poor performance over the past few weeks as the metal has come under renewed pressure in light of announcements from the Trump's White House on potential tax breaks for businesses. Subsequently, the bears have poured into the position and the metal is now trading around the significant depressed $17.26 an ounce mark. However, the metal could be about to turn around as some interesting technical indicators appear on the charts.

A quick review of Silver's chart on the daily timeframe shows the recent decline of price action towards what is a relatively strong level of support at $17.08. In addition, the RSI Oscillator is also relatively close to oversold levels, which suggests we may now see a reversal, or at least a period of moderation. Also, the 100 day moving average is just starting to tick lower and is likely to be squeezing the metal's price action in the coming week. Subsequently, there are plenty of technical factors suggesting that we are above to see a bullish leg form for the embattled metal in the near term.

Encouragingly, the metal is also in demand, from a physical point of view, but there appears to be a very real disconnect between the physical and derivative markets. However, there is the ever present risk of additional fiscally conservative action from the Trump administration that is likely to complicate the metal's valuation. In particular, the purported tax cuts could potentially prove to stimulative for U.S. growth and thereby depress Gold and Silver prices. However, at the time of writing this research note the chance of any such cuts passing through congress is limited at best. The reality is these elected representatives are experts at including a variety of loopholes for special interests and any potential tax deal will suffer the same fate.

Ultimately, the technical hypothesis is likely to win out in the near term and this is likely to bring about additional buoyancy for Silver. The most likely scenario is, one of a short period of sideways movement, before we see price action moving back above the 100 day moving average with an upside target of $18.62 an ounce. This is especially prescient given that the current support level that price action is resting upon is a big one. So keep a close watch on Silver over the coming week because we might just be setting up for a significant gain.