Silver tests double-top zone after 60% run; analyst cautious
The silver market has been on a tear in recent months, with the precious metal surging nearly 60% in just six months. This impressive run has been fueled by a combination of factors, including a decline in the US dollar, rising inflation, and increased safe-haven demand. However, as silver prices have reached new highs, charts are now showing a possible double-top pattern that often signals a downturn. According to analyst Ole Hansen, silver must hold above a key level to avoid a bearish setup and confirm its bullish trend.
A double-top pattern is a technical indicator that forms when a security, in this case, silver, reaches a high price, pulls back, and then reaches the same high price again. This pattern is often seen as a reversal indicator, suggesting that the security is about to change direction and head lower. In the case of silver, the double-top pattern is forming around the $50 level, which has acted as a key resistance point in the past.
Hansen, a seasoned analyst, has flagged the $48.92 level as a crucial support zone for silver. If the metal fails to hold above this level, it could trigger a bearish setup, potentially leading to a decline in prices. On the other hand, if silver can stay above $50, it would be a bullish signal, confirming the metal’s upward trend. A rebound near $51 would be an even stronger bullish indicator, suggesting that the metal is poised to continue its upward momentum.
The recent surge in silver prices has been driven by a combination of fundamental and technical factors. The decline in the US dollar has made silver more attractive to investors, as a weaker dollar increases the metal’s purchasing power. Additionally, rising inflation has led to increased demand for silver as a hedge against inflation, as the metal is often seen as a store of value. The COVID-19 pandemic has also played a role, as investors have sought safe-haven assets like silver to protect their portfolios from market volatility.
Despite the potential double-top pattern, Hansen remains cautious but optimistic about silver’s prospects. He notes that safe-haven demand remains elevated, driven by ongoing economic uncertainty and market volatility. As long as this demand persists, silver is likely to remain well-supported, even if it experiences a short-term pullback.
In addition to the technical indicators, there are also fundamental factors that support a bullish outlook for silver. The metal is used in a wide range of industrial applications, including solar panels, electronics, and medical equipment. As the global economy continues to recover from the pandemic, demand for these products is likely to increase, driving up demand for silver.
Furthermore, the silver market is also influenced by investment demand, which has been on the rise in recent months. The launch of new silver-backed exchange-traded funds (ETFs) has made it easier for investors to access the metal, leading to increased investment demand. This demand is likely to continue, as investors seek to diversify their portfolios and hedge against market volatility.
In conclusion, while the double-top pattern in silver’s chart is a cause for caution, it is not a guarantee of a downturn. The metal’s strong fundamental and technical backdrop, combined with ongoing safe-haven demand, suggests that the bullish trend is likely to continue. As Hansen notes, a rebound near $51 would be a strong bullish signal, confirming the metal’s upward momentum. As always, investors should keep a close eye on the market and be prepared for any potential volatility.
For more information on the silver market and Ole Hansen’s analysis, please visit: https://stocktwits.com/news-articles/markets/equity/hansen-flags-key-levels-for-silvers-double-top-formation/cLPQQLeRE4h
