Silver Prices: Heading For $41–42 Target Zone

Silver has been on a run for a while now and is competing with gold for attention. It is currently trading at 52-week highs, although it is still off its all-time highs that were recorded back in 2011 (close to $50).

Currently prices appear to be on the verge of staging another breakout higher that may now enable the prices to reach around the $41.5-42 area. In earlier analyses of Silver also I have indicated that this is a target zone and it now seems to be headed there.

On the attached chart, it can be noted that Siver went through a 9-year bear market and now the current rise has been in progress for about 5-years. The chart shows a confluence of three different tools- Gann angles (from the top), Fibonacci retracements (2011-2020 fall) and pitchfork channel (rise from 2020). They have all acted to curb or propel the moves during the rally of the last five years and now the prices are about to break out of the top channel of the pitchfork. The target zone is defined by the 78.6% retracement zone as well as the final Gann angle line.

Not shown in the chart, but the momentum indicators like Rsi are still in decent shape for the commodity and promise to support a breakout that may propel prices towards the target zone.

One must recall here that the 2011 top of around $50 was a double top with the big top of bullion markets way back in 1980. Considering that the prices retraced 78.6% to around $13 levels in the fall to 2020, this retracement level seems to be favoured by the metal. So, if it worked so well at the bottom, will it hold the prices at the top as well? We will just have to watch the action for an answer to that one.

But what is more important to keep in mind is, what happens if Silver continues higher past the targets? That will, then surely mean a retest of the all-time highs and even a new high breakout too! But this is much in the future and carries very less meaning in the present, especially for traders.    

Silver tends to move more erratically and in spurts rather than exhibit the smooth trends seen in Gold. So, traders need to provide for that behaviour. It therefore has a much higher beta compared to gold, which perhaps endears it to traders who love volatility.

The biggest draw for Silver has always been its Industrial use. If anything, this is expected to increase in the future. Hence that factor shall continue to play out. But it also induces volatility as demand and supply factors can contribute to unpredictable push and pull on prices.

So, while prices are on a good wicket right now, as Silver pushes itself into the $42 area, it may be wiser to scale back on the speculation and reduce leverage positions and to see where the dust settles. 

CK Narayan is an expert in technical analysis, the founder of Growth Avenues, Chartadvise, and NeoTrader, and the chief investment officer of Plus Delta Portfolios.

Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.