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Silver technical analysis for June: prices will likely continue to rally

As countries around the globe reopen their economies, silver prices should benefit

Over the past 10 years, June has been a mixed month for silver returns. This year, silver prices began to percolate in mid-May and are poised to continue to climb into June. 

In general, silver prices outperform gold prices when economic growth is about to expand. Currently, we can see that gold prices have continued to outperform silver in 2020, and in early May reached a 50-year high. With gold prices at fresh 7-year highs, silver prices should begin to outperform and rally through June.

Silver to continue to play catchup to gold

Silver prices have rebounded sharply versus gold during May, and should continue to increase relative to the yellow metal into June. The rebound reflects increasing sentiment as countries around the globe begin to reopen their economies. 

The ratio between gold and silver (Gold/Silver) blew out to 125 in late March but has retraced back to 99, en route to the 50-week moving average at 92. The trend in the ratio between gold and silver has been upward sloping, but the 200-week moving average of the ratio between gold and silver is closer to 82. A decline of the gold/silver ratio to 92 represents a 7 per cent silver outperformance compared to gold. 

If gold prices remain unchanged, silver would need to move up 7 per cent to $18.61 to push the silver-gold ratio down to 92 (the 50-week moving average of the ratio of gold to silver).

Seasonals are soft

There is little seasonal movement in silver prices during June, which could help derive sentiment. During the past 10 years, the prices of silver were higher 40 per cent of the time with an average gain of 0.2 per cent. This gives an investor little to go on.

Silver price technical analysis

Silver prices are rising in May after rebounding from 52-week lows in March. Target resistance on silver prices is seen near a downward sloping trend line that comes in near $18.65. This resistance level coincides with the 92 gold to silver ratio target at $18.61 discussed earlier if gold prices remain unchanged and silver plays catch up. Support on silver prices is seen near the 50-week moving average at $16.71.

Medium-term momentum has turned positive as the moving average convergence divergence (MACD) index generates a crossover buy signal. This occurs as the MACD line (the 12-week moving average minus the 26-week moving average) crosses above the MACD signal line (the 9-week moving average of the MACD line). The MACD histogram also generated a crossover buy signal, slicing through the zero-index level with an upward sloping trajectory which points to higher silver prices. 

Short-term momentum has also turned positive as is accelerating higher. The fast stochastic recently generated a crossover buy signal and is accelerating higher as well which points to higher silver prices.

How to trade silver

Silver prices should continue to improve with positive sentiment. As economies across the globe open, silver prices should benefit as the demand for industrial products made with silver such as photovoltaic products should increase. 

Silver should play some catch up to gold, allowing the ratio of gold to silver to decline. With positive momentum in place, silver prices should continue to rally into June.

Silver Spot
Daily change
17.762
Low: 17.323
High: 17.765

FURTHER READING: How to start investing in gold

FURTHER READING: Which investments are the best during a recession?

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