Since the beginning of the trading day on Tuesday, the price of silver has experienced a significant decline of 2.6% to reach $26.4 per ounce. This drop comes after a failed attempt to break above the $30 per ounce mark on 7th April. Following this unsuccessful rally, silver seems to have entered a phase of sideways consolidation without any major upward movements.
The recent decline in silver prices has important implications from a technical analysis perspective. The sharp drop from the $27 level has breached the corrective pattern, with the price falling below the key 61.8% Fibonacci retracement level of the rally from late February. The crucial question now is whether the previous resistance zone around 25.0-25.5 will act as a support level. Failure to hold above this level could potentially trigger a series of negative outcomes.
On the daily charts, a bearish reversal pattern known as the “head and shoulders” formation has emerged, with the price breaking below the “neckline.” This pattern suggests a possible pullback towards $24.4 in the near term. However, such a move is unlikely to deter the bearish sentiment in the market.
Over the years, the 200-week moving average has played a crucial role in determining the long-term trend for silver. The price has consistently found support near this moving average, preventing significant declines. Looking ahead, if the current pattern persists, we may see a slowdown in the selling pressure once silver approaches levels below $23.
In the past, silver has faced challenges in surpassing the $30 mark, with strong resistance preventing any sustained breakout. The inability to breach this level could deter potential buyers, especially in comparison to gold, which has seen more successful price rallies.
Despite the historical significance of the 200-week moving average, there are risks of a sharp decline if silver prices fall below this critical level. In previous instances, such as in 2020 and 2013, significant sell-offs occurred when silver dipped below the moving average, leading to price drops of more than 30%.
The current price action in silver suggests a cautious outlook, with potential downside risks looming ahead. Traders and investors should monitor key support levels and price patterns to navigate the volatility in the silver market effectively.