Silver markets rallied significantly on Friday to close out the year on the right foot, as we have closed significantly above the 50-day EMA. By doing so, the market is likely to continue to see upward momentum, and I do think that it is probably only a matter of time before we continue to climb. After all, gold is already broken out and silver looks like it is ready to do about the exact same thing.
The silver market has been very noisy for a while, and as we are sitting at the $23.33 level, we are approaching the $23.50 level which is the top of the short-term consolidation area that we have been bouncing around in. Underneath, the $22.60 level continues to offer support, but one would have to believe that because the gold market had broken out of this range, silver will probably follow along given enough time.
After that, we could go looking towards the $24 level, or perhaps even the $24.10 level where the 200 day EMA currently resides. That might take a little bit of time, but ultimately that seems to be the direction in which the market is trying to pick up. I think that we will more than likely continue to see more or less a “buy on the dips” type of mentality going forward, so that is exactly how I would play this market. I will start with small positions and then only add once the market works out my favor, as it gives us the possibility of building up a bigger position for a much longer-term move.
Based upon the way we have traded over the last several years, it is obvious that the $22 region is the beginning of significant support, just as the $25 level above has been significant resistance. That being said, the market is bouncing around in this range and I do not see that changing anytime soon. Keep in mind that there is a negative correlation between silver and the US dollar so pay attention to what is going on with the US Dollar Index. It should give you a bit of a heads up as to which direction we want to go over the longer term, but it is not the only thing that moves silver so you have to keep that in the back of your mind as well.
