The recent decline in silver prices by 2.6% on Tuesday to $26.4 per ounce has created a stir in the market. This downward trend follows a failed attempt to break above $30 per ounce on 7 April. The subsequent sideways consolidation without significant bounces has raised concerns about the future direction of silver prices.
The sharp drop from the $27 level signifies a break below the corrective pattern, with the price falling below 61.8% of the increase since late February. The critical level of former local resistance in the range of 25.0-25.5 has now turned into a key support level. Failure to hold this support level could trigger a series of negative scenarios for silver prices.
On the daily timeframe charts, a reversal pattern known as the “head and shoulders” has emerged, with the price dropping below the “neckline.” This pattern indicates a potential pullback to $24.4, which could further strengthen bearish sentiment in the market. The recurring struggle for silver to surpass the $30 mark highlights a significant resistance level, deterring potential buyers.
Historical data reveals that the 200-week moving average has historically acted as a crucial support level for silver prices, preventing significant downtrends. The current pattern suggests that any sell-off may stabilize at levels below $23, with a slight risk of a dip to $21.3 based on past trends.
A more ominous scenario looms if silver positions experience mass liquidation following a breach of the 200-week moving average. Similar instances in 2020 and 2013 resulted in price drops exceeding 30%, indicating the potential for a substantial decline in silver prices.
The recent decline in silver prices has unveiled critical insights into the technical analysis of the market. The failure to break above key resistance levels and the emergence of reversal patterns indicate a challenging road ahead for silver investors. Monitoring support levels and historical trends will be crucial in determining the future trajectory of silver prices.