Silver markets dipped initially on Friday to reach below the $22 level, so it is likely that we would see a lot of support. The market is likely to continue to hang on to this area based upon the action on Friday, as the $22 level is more of a “zone of support” that extends down to the $21.50 level. The market has formed a bit of a hammer-shaped candlestick, and if we can break above the top of the highs for the day, I think that the silver market could go looking towards the $21.50 level.
Breaking above the $21.50 level opens up fresh buying, and a potential run towards the 50-day EMA above, currently sitting at the $23.49 handle. Regardless, keep in mind that silver markets are highly sensitive to risk appetite and the US dollar, so you need to keep an eye on the US Dollar Index. The negative correlation to the greenback is well known, so as a general rule, if the dollar rallies, silver struggles. Furthermore, we also have to pay close attention to the industrial demand for silver, because if it does look as if there is not going to be much of an industrial demand for silver, it will underperform gold. Far too many people equate the idea of silver moving right along with gold, but that is not always the case.
Silver does tend to be a lot more volatile, and it is the end of the year, so you need to be cautious about the idea of liquidity being an issue. The liquidity issues can cause major spikes, see need to be cautious about your position size when it comes to silver. Ultimately, silver moves quickly to begin with at times, and if we have a lot of the larger traders out there away from their desks, we could see a big move suddenly. With that in mind, I would be very cautious about putting too much into any particular trade, but a recovery in this area certainly seems very possible as it has been tested multiple times over the last few years. The markets will continue to see a lot of external influences, so although it looks like we could get a bit of a bounce, I do not know how far it has to run.
