Silver extends rally to weekly resistance, risk-on supporting

The price of silver has gone from strength to strength as the US dollar weakens, stocks edge higher and investors position for economic recovery. Consequently, we have seen a rebound in industrial demand. At the time of writing, XAG/USD trades at $18.3063 having rallied between a range of $17.8706 to a high of $18.3895. 

US President Donald Trump's address on China and strong words were more bark than bite, so financial and commodity markets responded in kind. With there being no additions to what the market had already expected to hear from Trump, nor any implementation of trade action that would have otherwise limited the resurgence in commodity demand, industrials and silver have surged at the start of this week.

Explosive performance in silver

Equity prices continue to climb and the overall sentiment in markets has dented the USD, extending its positioning to the downside in both the futures and spot FX space. That being said, "risks are growing as US-Sino tensions simmer, as highlighted by Beijing's reported 'pause' of US agricultural imports," analysts at TD Securities note.

"Recovery in commodity demand, combined with rising investment flows in precious metals has created the set-up for explosive performance in silver. Speculative interest remains low, despite a noteworthy increase in long interest over the past weeks, which highlight the increasing interest in the metal. Platinum could also see a further increase in CTA length as upside trend signals continue to firm."

Silver levels

At this juncture, both the DXY and XAG/USD are testing weekly levels and a pullback could be on the cards. For silver, a 38.2% Fibonacci retracement of the latest impulse falls in at 17.7530 while a mean reversion takes the metal all the way back to the prior impulses highs and resistance, a level which if supports will open the case for the next leg higher.

The 50% reversion level is located at 17.5574. However, the shorter-term conditions remain bullish with MACD above the zero lines on both the 4 and 1 hour time frames. Should the said support fail to hold, the 38.2% Fib of the 18th March lows is located at 15.8127, below prior support of 16.52 and 16.80 which meets the 23.6% of the said bull run.