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The price of silver (XAGUSD) has been relatively boring for the past few days. The price continued to move sideways as investors wait for a catalyst. In this report, I will show some parallels that suggest in which direction the metal will burst.
Why the price of silver has stagnated
Silver is not the only precious metal that has stagnated in recent days. Indeed, the price of gold has stagnated near its 7-year high over the past few days as investors assess the state of the economy. Silver tends to move in the same direction as gold. Another reason why XAGUSD remained unchanged is that there is simply no major news to drive the price up.
However, a closer look at the bigger picture shows that the price will break out higher. First, during the financial crisis of 2008/9, the price of silver fell to $8.36 as shown below. This year, the price was pushed to a multi-year low of $11.64 when the coronavirus was labeled a pandemic. After the 2008/9 crisis, the price shot up to almost $50. During this period, the price of gold also reached an all-time high.
The price of silver parallels the 2008 financial crisis
Part of the reason the price of silver jumped so high after the 2008/9 crisis was the reaction of the Fed and the US government. In the last crisis, the Federal Reserve expanded its balance sheet by more than $600 billion. This year alone, the Federal Reserve has already printed over $2 trillion to support the economy.
Again, the US government offered a fiscal stimulus of around $700 billion during the last crisis. This year alone the government has offered over $2.6 trillion and there is talk of another $3 trillion. The same is happening all over the world. For example, Japan and the European Union are already implementing scalable QE policies.
As I wrote before, most wealthy people have already started investing a substantial portion of their wealth in precious metals.
Another silver price catalyst is the upcoming demand as countries reopen. As you remember, the world economy had its best period after the crisis of 2008/9. Unless another pandemic occurs, I expect the global economy to rebound stronger than ever. This will lead to an increase in demand for silver products, including 5G.
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Silver Price Technical Outlook (XAGUSD)
On the daily chart below, we see that the price of silver has risen slightly and is now above the 50-day exponential moving average. The price is also a few points below 15.81, the April 14 high. Moreover, it is slightly above the 50% Fibonacci retracement level. I expect the bulls to remain in control as they attempt to move above 15.81 and test the 61.8% retracement level.
On the other hand, a passage under the important support of 14.55 will stop this thesis. This price is the April 21 low and is also slightly above the 38.2% Fibonacci retracement level.
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