Silver analysis: bear market rally and what lies ahead

Silver has risen by 11% in the last two weeks. This performance comes after losing about 30% since March 8, indicating a so-called bear-market rally.

The main macro driver behind the silver price recovery has been a sharp drop in US bond yields, with the 10-year yield falling to 3-month lows at 2.6%, its lowest level since April, as the market now expects the Fed to be more dovish because of the recession.

From a technical standpoint, silver is approaching an important area of technical resistance in the $20.5-20.6 range, which includes the 50-day moving average, which has been trading above the metal's prices for more than three months. This area was also the support level in May, which was then breached in late June, resulting in a sharp selloff.

The significant rebound from the lower line of the major descending channel indicates a positive short-term price momentum for silver, with the RSI breaking above 50 for the first time since April 20th.

An overshoot above $20.7, and then above the psychological level of $21, would provide the bulls with additional confidence. Then, $22-22.3 (May/June resistance & February-April support) provides an important resistance area, where some stronger seller pressure could appear.

However, as long as prices do not decisively exceed the 50% Fibonacci retracement level at $22.6 and the 200-dma at $22.9, the broader silver's picture remains tilted to the bearish side.

Looking ahead, silver's strong correlation with safe-haven gold – which is currently close to one – is a positive factor if recession fears continue to fuel speculation on a dovish Fed. In contrast, if the Fed continues to tighten monetary policy despite the recession, this might keep silver prices relatively contained (below $22.5) for longer.

Analysis by Capital.com's forex and metals analyst Piero Cingari